Economic order quantity calculator

How the EOQ formula works

EOQ = √(2DS ÷ H), where D is annual demand in units, S is the fixed cost of placing one order, and H is the cost of holding one unit in stock for a year. The square root balances two opposing costs: order too often and ordering costs pile up; order too much at once and holding costs balloon. EOQ is the order size where those two costs are equal — the total-cost minimum.

D — annual demand is the number of units you expect to sell or use in a year. Take it from last year’s sales, adjusted for growth. S — order cost is the fixed cost of placing one order regardless of size: admin time to create and approve the purchase order, shipping, and receiving. It is not the cost of the goods themselves.

H — holding cost is what it costs to keep one unit in stock for a year: storage space, insurance, capital tied up, shrinkage, and obsolescence risk. A common shortcut is 20–30% of the item’s unit cost per year — so a $15 item typically costs $3–$4.50 to hold. EOQ is not very sensitive to small errors in H, so the shortcut is fine when you don’t have exact figures.

A worked example

Say an item has annual demand of 4,800 units, a $50 cost per order, and a $4 per-unit annual holding cost. EOQ = √(2 × 4,800 × 50 ÷ 4) = √120,000 ≈ 346 units per order. That order size minimizes the combined total of ordering costs and holding costs for the year.

At 346 units per order, you place about 4,800 ÷ 346 ≈ 14 orders per year — roughly one every 26 days. The calculator above also totals the annual ordering and holding cost so you can see the trade-off in dollars, not just units. Change any input and every number updates live.

When NOT to use EOQ

Skip EOQ when suppliers impose case packs or minimum order quantities that dominate the decision — order to the supplier constraint instead. Skip it when demand is highly seasonal or lumpy, because the formula assumes steady, predictable demand across the year.

Also set EOQ aside for perishable or fast-obsoleting items, where holding even the “optimal” quantity risks spoilage or write-off, and when quantity discounts change the per-unit cost at certain order sizes. In those cases a min/max policy or the supplier’s break point is the better guide. EOQ tells you how much to order; a reorder point tells you when — use them together, and treat EOQ as a guide, not a law.