If you carry inventory, one of the most important questions is: how much should I order each time? Order too little and you place too many expensive purchase orders. Order too much and you tie up cash while storage costs climb. This Economic Order Quantity (EOQ) calculator helps you find the balance point that minimizes total inventory cost.
EOQ Calculator
Use annual demand, ordering cost, and holding cost per unit to estimate your optimal order quantity.
What Is Economic Order Quantity (EOQ)?
Economic Order Quantity is a classic inventory management formula that finds the most cost-efficient order size. The model balances two opposing costs:
- Ordering cost: costs tied to placing and receiving orders (administration, shipping setup, receiving labor).
- Holding cost: costs of storing inventory (warehouse space, insurance, spoilage, financing/capital cost).
As order size increases, ordering cost usually falls (fewer orders), but holding cost rises (more average inventory). EOQ identifies the point where total annual inventory cost is minimized.
The EOQ Formula
The standard formula is:
EOQ = √((2 × D × S) / H)
- D = annual demand (units per year)
- S = ordering cost per order
- H = annual holding cost per unit
At the EOQ point, annual ordering cost and annual holding cost are equal, which is why this model is often used as a first-pass benchmark for purchasing policy.
How to Use This Calculator
Step 1: Enter your demand
Input the expected number of units used or sold per year. For seasonal businesses, use your best annual forecast.
Step 2: Enter ordering cost
Include all per-order costs (procurement time, freight administration, inspection, receiving). Even small line items matter.
Step 3: Enter holding cost per unit
This is annual cost to hold one unit in stock. It often includes:
- Storage and handling
- Insurance and shrinkage
- Cost of capital (cash tied in inventory)
Step 4: Optional fields
- Unit cost: lets you estimate total annual cost including purchases.
- Working days + lead time: lets you estimate reorder point.
Example EOQ Calculation
Suppose a company has:
- Annual demand (D): 12,000 units
- Ordering cost (S): $45 per order
- Holding cost (H): $2.50 per unit/year
EOQ = √((2 × 12,000 × 45) / 2.5) = √432,000 ≈ 657 units.
That means ordering about 657 units each time minimizes annual ordering + holding costs under EOQ assumptions.
EOQ Assumptions You Should Know
EOQ is useful, but it simplifies reality. It assumes:
- Demand is relatively stable.
- Lead time is known and consistent.
- No stockouts are allowed.
- Unit price is constant (no bulk discounts in the basic model).
- Inventory is replenished in full batches.
If your business has volatile demand or supplier uncertainty, EOQ is still valuable as a baseline, but you should layer in safety stock and service-level targets.
EOQ vs. Reorder Point
EOQ tells you how much to order. Reorder point tells you when to order.
A simple reorder point estimate is:
Reorder Point = Daily Demand × Lead Time (days)
This calculator provides that estimate so you can combine order quantity and timing in one workflow.
Practical Tips for Better Inventory Decisions
- Review EOQ quarterly as demand, freight, and storage costs change.
- Separate high-value SKUs from low-value SKUs; not every item needs the same policy.
- Track order cycle performance to verify that your assumptions match actual behavior.
- Use EOQ with ABC analysis to focus effort where cost impact is highest.
Final Thoughts
A good inventory system is not about ordering the most or the least—it is about ordering the right amount at the right time. EOQ gives you a data-backed starting point that can reduce waste, improve cash flow, and make purchasing decisions more consistent.