📦 Economic Order Quantity (EOQ) Calculator
Optimize inventory orders to minimize total costs
EOQ Calculation Results
How to Use This Tool
- Enter your demand for the product, or enter periodic demand and select the time period to auto-convert to annual units.
- Input the fixed cost incurred each time you place a new order (e.g., shipping, processing, labor costs).
- Select your holding cost type: fixed amount per unit per year, or a percentage of the product's unit cost.
- Fill in the required holding cost fields based on your selected type.
- Choose your business's operating currency from the dropdown menu.
- Click "Calculate EOQ" to view your optimal order quantity and full cost breakdown.
- Use the "Reset" button to clear all fields and start a new calculation.
Formula and Logic
The Economic Order Quantity (EOQ) uses a standard operations management formula to find the order size that minimizes total inventory costs, balancing ordering expenses and holding (storage) expenses.
Core EOQ Formula: EOQ = √(2DS / H)
- D = Annual demand for the product (in units)
- S = Fixed ordering cost per order (currency)
- H = Annual holding cost per unit (currency)
Derived calculations included in your results:
- Number of Orders Per Year = D / EOQ
- Annual Ordering Cost = (D / EOQ) * S
- Annual Holding Cost = (EOQ / 2) * H
- Total Annual Inventory Cost = Annual Ordering Cost + Annual Holding Cost
- Time Between Orders = 365 days / Number of Orders Per Year
Practical Notes
These business-specific tips help you apply EOQ results to real-world trade and e-commerce operations:
- EOQ assumes constant demand and fixed ordering/holding costs: adjust calculations if you have seasonal demand spikes or variable shipping rates.
- For e-commerce sellers using third-party logistics (3PL), include 3PL per-order fees in your ordering cost, and 3PL storage fees in holding costs.
- If your holding cost is a percentage, use your business's weighted average cost of capital (WACC) or internal storage cost rate for accuracy.
- Most suppliers offer volume discounts for larger orders: compare EOQ results to bulk pricing tiers to see if deviating from EOQ saves more overall.
- Reorder points require adding lead time demand to EOQ: this tool focuses on order quantity, not reorder timing.
Why This Tool Is Useful
Small business owners and traders often over-order (tying up cash in excess inventory) or under-order (incurring high frequent ordering costs). This tool eliminates guesswork by providing a data-backed optimal order size.
- Reduces total inventory costs by balancing ordering and holding expenses
- Improves cash flow by preventing overstocking of slow-moving goods
- Helps negotiate better supplier terms by showing your ideal order volume
- Scales with your business: works for e-commerce SKUs, wholesale trade goods, and retail inventory
- No manual math required: auto-converts periodic demand and handles percentage-based holding costs
Frequently Asked Questions
What if my demand changes seasonally?
EOQ assumes constant annual demand, so calculate separate EOQs for peak and off-peak seasons using period-specific demand, ordering, and holding costs. Adjust your ordering schedule quarterly or monthly to match seasonal shifts.
Should I round EOQ to a whole number?
EOQ is a theoretical value, so round to the nearest whole unit for practical ordering. Many businesses round up to the next full case pack or supplier minimum order quantity (MOQ) if it's close to the calculated EOQ.
How do I calculate holding cost for my business?
Add up all annual storage costs per unit: warehouse rent, insurance, spoilage, labor, and capital tied up in inventory. If using a percentage, divide total annual storage costs by total inventory value to get your percentage rate.
Additional Guidance
For multi-SKU businesses, calculate EOQ for each product individually, as demand and costs vary by item. Pair EOQ results with safety stock calculations to avoid stockouts during supplier lead times. Review your EOQ calculations quarterly, as demand, shipping rates, and storage costs change over time. If your business has high volume discounts, compare the total cost of ordering at EOQ vs. the discounted bulk quantity to find the most cost-effective option.