EOQ calculator
Order too often and you pay for every order; order too much and you pay to store it. The economic order quantity (EOQ) is the order size where those two costs together are lowest. Enter yearly units, what an order costs and what stock costs to keep, then drag your order size along the cost curve. Or upload a SKU list to size every order at once.
Order too often and you pay for every order; order too much and you pay to store it. The economic order quantity (EOQ) is the order size where those two costs together are lowest.
- Economic order quantity√(2 × yearly units × cost per order ÷ yearly holding cost per unit): the order size with the lowest total of ordering and holding costs.
1,342 units
8.9 orders a year, every 41 days- Lowest yearly cost
- $2,683$1,342 ordering + $1,342 holding
- Your 500 per order
- $4,100$3,600 ordering + $500 holding
- Extra vs the EOQ
- +52.8%$1,417 a year more
Or drag the dot to a case pack, pallet or supplier minimum to see what it costs.
Showing the worked example: 12,000 units a year at $150 an order and $2 a unit to hold. Drag the chart or type your own.
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How to read your number
EOQ, the economic order quantity, is the order size where the cost of placing orders and the cost of holding stock add up to the least. At 12,000 units a year, $150 an order and $2 a year to hold each unit, it's about 1,342 units: roughly 9 orders a year, one every 41 days, for $2,683 a year in ordering and holding together.
Why it matters
Order too often and you pay for setup, freight minimums and receiving again and again. Order too much and cash sits on shelves, paying for storage and risking dead stock. EOQ gives a starting order size for each product, so purchase orders follow the numbers instead of habit. Add safety stock on top to decide when to order.
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Formula
EOQ = √(2 × yearly demand × cost per order ÷ holding cost per unit per year)
Holding cost per unit is the unit cost times your yearly holding rate: storage, insurance, shrinkage and the cost of the cash tied up. At the EOQ, the yearly ordering cost equals the yearly holding cost, which is a quick way to check the answer.
Other ways to calculate EOQ
- Holding cost in dollars
- EOQ = √(2DS ÷ H)
- When your 3PL or warehouse charges a known dollar amount per unit per year. D is yearly demand, S the cost per order and H the dollar holding cost.
- Total yearly cost
- Total cost = (D ÷ Q) × S + (Q ÷ 2) × H
- To compare any order size Q with the EOQ, such as a supplier's minimum order or a pallet quantity.
- Production quantity (EPQ)
- EPQ = √(2DS ÷ (H × (1 − daily demand ÷ daily production)))
- When you make the product yourself and stock builds up while the run is still going, rather than arriving all at once.
- With a quantity discount
- Compare total cost + D × unit price at the EOQ and at each price break
- When a supplier lowers the unit price above a quantity. Pick the order size with the lowest cost including the purchase price.
What goes into each cost
- Cost per order. Everything that happens once per purchase order, whatever its size: the supplier's setup or minimum fee, inbound freight that doesn't scale with units, receiving and inspection time, and the admin of placing it.
- Holding cost. What a unit costs to keep for a year: warehouse or 3PL storage fees, insurance, damage and shrinkage, and the return you'd earn on the cash elsewhere. Add them up as a share of unit cost.
- Yearly demand. Units sold over the next 12 months. Use a forecast, not last year, if you're growing.
EOQ assumes steady demand, a fixed cost per order and stock that arrives all at once. Real demand swings, so treat it as the order size to aim for and adjust it to case packs, pallet quantities and supplier minimums.
How to calculate EOQ: a worked example
A store sells 12,000 units a year of a product it buys at $8. Each purchase order costs $150 to place and receive, and holding stock costs 25% of unit cost a year.
- Holding cost per unit = $8 × 25% = $2 a year
- EOQ = √(2 × 12,000 × $150 ÷ $2) = √1,800,000 = 1,342 units
- Orders a year = 12,000 ÷ 1,342 = 8.9, about one every 41 days
- Ordering cost = 8.9 × $150 = $1,342; holding cost = 1,342 ÷ 2 × $2 = $1,342
Ordering about 1,342 units at a time costs $2,683 a year in ordering and holding together. Ordering 500 at a time would cost $4,100, and 4,000 at a time $4,450.
How close to the EOQ do you need to be?
Not very. The total cost curve is flat near the bottom: ordering 50% more than the EOQ raises yearly ordering and holding cost by only about 8%, and ordering half as much raises it by 25%. So rounding up to a full case or pallet, or down to what cash allows, is fine.
Stray further and it matters. Ordering three times the EOQ costs about two thirds more each year and ties up three times the cash. If a supplier minimum forces that, check the unit price break is worth it, and track how fast it sells with the inventory turnover calculator.
| Order size | Extra cost vs the EOQ |
|---|---|
| 0.25× EOQ | +113% |
| 0.5× EOQ | +25% |
| 0.75× EOQ | +4% |
| 1× EOQ | Lowest cost |
| 1.25× EOQ | +2% |
| 1.5× EOQ | +8% |
| 2× EOQ | +25% |
| 3× EOQ | +67% |
Questions about EOQ
- What is EOQ?
- EOQ, or economic order quantity, is the order size that keeps the yearly cost of placing orders plus the cost of holding stock as low as possible. Order less and you pay for more orders; order more and you pay to store it. At 12,000 units a year, $150 an order and $2 a unit to hold, it's about 1,342 units.
- What is the EOQ formula?
- EOQ = √(2DS ÷ H), where D is yearly demand in units, S is the cost of placing one order, and H is the cost of holding one unit for a year. It gives the order size where ordering and holding costs add up to the least.
- What is a good holding cost percentage?
- Add up your own: storage fees, insurance, shrinkage and damage, plus what the cash would earn elsewhere, as a share of unit cost. A store paying a 3PL by the pallet can divide its yearly storage bill by the average value of stock it holds.
- What are the limitations of EOQ?
- It assumes steady demand, a fixed order cost, no stockouts and stock that arrives all at once. Seasonal products, launches and supplier minimums break those assumptions, so use EOQ as a baseline and adjust it.
- How do you calculate the number of orders per year?
- Divide yearly demand by the order quantity. At 12,000 units a year and an EOQ of 1,342, that's about 8.9 orders, or one every 365 ÷ 8.9 = 41 days.
- Can I calculate EOQ for many products at once?
- Yes. Switch the calculator to the SKU view, download the template, and fill in daily sales, lead time and unit cost for each product. It returns the EOQ, safety stock and reorder point for every SKU, flags the ones to order now, and lets you download the plan. The file is read in your browser and never uploaded.
- What is the difference between EOQ and reorder point?
- EOQ is how much to order; the reorder point is when to order. The reorder point is the stock level that covers demand during the supplier's lead time plus safety stock. Work it out with the safety stock calculator.
Sources
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