Economic order quantity (EOQ) is the order size that minimises the combined yearly cost of placing orders and holding stock. The classic model assumes steady demand and a fixed cost per order.
Enter your numbers below to see the EOQ, how often to order and the yearly cost.
EOQ Calculator: Economic Order Quantity
Enter your numbers to see the result.
Estimates for planning only. Results depend on the accuracy of the inputs and the assumptions of the standard formula.
The EOQ formula
EOQ = square root of ( 2 x D x S / H )
- D is annual demand in units.
- S is the cost of placing one order.
- H is the holding cost per unit per year, here unit cost x holding rate.
Related results: orders per year = D / EOQ, days between orders = 365 / orders per year, and annual ordering plus holding cost = (D / EOQ) x S + (EOQ / 2) x H. The purchase price of the goods is excluded because it does not change with order size in this model.
Worked example
Annual demand is 12,000 units, each order costs $75 to place, the unit cost is $25 and the holding rate is 20% a year, so H = $5.
- EOQ = square root of (2 x 12,000 x 75 / 5) = square root of 360,000 = 600 units
- Orders per year = 12,000 / 600 = 20
- Days between orders = 365 / 20 = about 18 days
- Annual cost = 20 x $75 + (600 / 2) x $5 = $1,500 + $1,500 = $3,000
At the optimum, ordering cost and holding cost are equal.
When EOQ works and when it does not
EOQ assumes constant demand, a fixed ordering cost, no quantity discounts and instant or predictable replenishment. Real situations often differ, so treat the result as a starting point and round to practical units such as case or pallet sizes.
The total cost curve is flat near the optimum, so a small deviation from EOQ changes cost only slightly. Supplier minimums, price breaks, shelf life and storage space often matter more than the exact figure.
Combine EOQ with a reorder point and safety stock for a complete replenishment rule. See also our inventory and warehousing guides.
Common questions
What costs go into the holding cost?
Capital cost of money tied up in stock, storage space, handling, insurance, shrinkage and obsolescence. Expressed as a percentage of unit cost per year, it varies by business, so use your own finance team's figure rather than a generic one.
Does EOQ include the purchase price?
The order quantity depends on purchase price only through the holding cost, since holding cost is unit cost times a rate. The calculator reports ordering plus holding cost only, not the cost of the goods themselves, which is the same at any order size in this model.
What if my supplier offers quantity discounts?
Calculate total cost, including the purchase price, at each discount tier and compare it with the EOQ result. The best quantity may be at a price break above the EOQ, because the saving on the goods can outweigh the extra holding cost.
Should I round the EOQ result?
Yes. Round to a practical unit such as a case, layer or pallet. Because total cost is flat near the optimum, rounding by a few percent changes the yearly cost very little, and it makes receiving and storage simpler.
Why does the EOQ result differ from current order sizes?
Real ordering is shaped by supplier minimums, truckload economics, storage limits and shelf life. A gap between EOQ and current practice is a prompt to check those constraints and the cost inputs, not proof that current practice is wrong.