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EOQ Calculator

Quick answer

This calculator computes Economic Order Quantity to minimize inventory costs.

  • Formula: EOQ = sqrt(2 × Annual Demand × Order Cost / Holding Cost).

Figures are estimates from this calculator’s standard formula — adjust the inputs in the tool below for your exact number.

How EOQ Calculation Works

EOQ = sqrt(2 × Annual Demand × Order Cost / Holding Cost)

Economic Order Quantity finds the optimal order size that minimizes total inventory costs. It balances ordering costs (which decrease with larger orders) against holding costs (which increase with larger inventory). The EOQ is where these two cost curves intersect.

  1. 1

    Step 1

    Enter annual demand in units

  2. 2

    Step 2

    Input fixed cost per order (shipping, processing, handling)

  3. 3

    Step 3

    Specify holding cost per unit per year (storage, insurance, depreciation)

  4. 4

    Step 4

    Calculator applies the EOQ formula

  5. 5

    Step 5

    View optimal order quantity, orders per year, and total costs

Use Cases

Inventory Optimization

Determine the optimal order quantity that minimizes the total of ordering and holding costs.

Supply Chain Planning

Plan ordering schedules and warehouse capacity based on optimal order quantities.

Cost Reduction

Identify potential savings by comparing current ordering practices to EOQ recommendations.

Vendor Negotiation

Understand your optimal order quantity when negotiating volume discounts with suppliers.

Tips

  • 1

    EOQ assumes constant demand - adjust for seasonal variations

  • 2

    Holding cost typically ranges 15-30% of item value annually

  • 3

    Include all ordering costs: shipping, handling, inspection, and administrative

  • 4

    EOQ is a starting point - adjust for constraints like storage space and cash flow

  • 5

    Review and recalculate EOQ when costs or demand patterns change significantly

Common Mistakes

  • Ignoring Demand Variability

  • Underestimating Holding Costs

  • Ignoring Quantity Discounts

  • Not Considering Lead Time

FAQs

What is Economic Order Quantity?

EOQ is the optimal order size that minimizes total inventory costs (ordering + holding). It's where the cost of placing orders equals the cost of holding inventory.

What costs are included in ordering cost?

Fixed costs per order: purchase order processing, shipping/freight, receiving and inspection, invoice processing. Does not include the product cost itself.

What costs are included in holding cost?

Annual cost to store one unit: storage space, insurance, taxes, obsolescence, shrinkage, opportunity cost of capital. Typically 15-30% of item value.

Does EOQ work for all products?

Best for stable, continuous demand items. Less suitable for seasonal products, new products, or items with highly variable demand.

How often should I recalculate EOQ?

When demand, ordering costs, or holding costs change significantly. At minimum, review annually or when making major supply chain changes.

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