What this calculator measures
Economic order quantity estimates the replenishment quantity that balances ordering cost with annual inventory holding cost. The classic formula is the square root of two times annual demand times cost per order, divided by annual holding cost per unit.
EOQ is a planning baseline, not an automatic purchase order. Supplier minimums, case packs, capacity, shelf life, demand uncertainty, quantity discounts, and cash constraints may justify a different quantity.
Common use cases
Use this model when the inputs describe the same decision, period and customer or product scope.
- Estimate the order quantity that balances modeled ordering and inventory holding costs.
- Use the result with the recorded inputs: Annual demand, Cost per order, Annual holding cost per unit, Working days per year.
- Compare multiple scenarios before making a ecommerce decision.
Formula
EOQ is a cost-balancing model and does not include stockout risk, quantity discounts, or capacity constraints.
Formula breakdown
- EOQ balances modeled ordering cost against modeled inventory holding cost.
- Demand, ordering cost and annual holding cost per unit must use compatible annual assumptions.
Economic Order Quantity: formula, inputs and interpretation
EOQ is a cost-balancing model and does not include stockout risk, quantity discounts, or capacity constraints.
Formula
Example input values
Worked calculation and answer
Annual demand of 12,000 units, an ordering cost of $45, and annual holding cost of $6 per unit produce an EOQ of about 424 units. That implies roughly 28.3 orders per year, or about 8.8 working days between orders using 250 working days.
Variable definitions and checks
- Annual demand (annualDemand): Use a numeric value at least 0. Check its reporting period and definition before comparing it with other inputs.
- Cost per order (orderCost): Use a numeric value at least 0. Check its reporting period and definition before comparing it with other inputs.
- Annual holding cost per unit (holdingCost): Use a numeric value at least 0. Check its reporting period and definition before comparing it with other inputs.
- Working days per year (workingDays): Use a numeric value at least 0. Check its reporting period and definition before comparing it with other inputs.
When the result may mislead
The calculation reflects the variables named above, not unentered taxes, platform terms, reporting delays, financing charges or external forecasts. For comparisons, keep the same units and reporting period and change one assumption at a time.
Scenario comparison
If annual demand is 10,000 units, ordering cost is $50 per order and annual holding cost is $2 per unit, EOQ is approximately 707 units.
If holding cost doubles, the economically balanced order quantity decreases.
How to interpret the result
EOQ is relatively insensitive near the optimum, so rounding to a practical case quantity may have little cost impact. Test supplier tiers and operational constraints before changing policy.
EOQ determines how much to order, while reorder point determines when to order. Use a separate lead-time and safety-stock analysis for the trigger.
What a good result looks like
EOQ is most useful as a cost benchmark when demand and replenishment conditions are reasonably stable.
Operational constraints may justify ordering more or less than the mathematical result.
Common mistakes
- Do not confuse EOQ with reorder point; EOQ addresses how much to order, not when to order.
- Do not omit material storage or financing costs from holding-cost assumptions.
When this metric can mislead you
EOQ assumes relatively steady demand and does not directly model quantity discounts, stockouts or capacity constraints.
Highly volatile or perishable inventory may require a different policy.
How to use the result in a decision
Use EOQ as a starting quantity and test supplier minimums, freight economics and storage capacity.
Combine it with reorder-point and safety-stock calculations.
Assumptions and limitations
- Annual demand is known and reasonably stable.
- Ordering cost is fixed per order and holding cost is stated per unit per year.
- Replenishment arrives without partial shortages in the basic model.
- Quantity discounts, stockout cost, lead-time variation, and obsolescence are not modeled.
Frequently asked questions
Does EOQ include safety stock?
No. Safety stock affects average inventory and the reorder trigger but is separate from the classic EOQ quantity.
What belongs in ordering cost?
Include incremental purchasing, receiving, inspection, payment, and setup effort that occurs each time an order is placed.
How do I estimate holding cost?
It may include financing, storage, insurance, shrinkage, handling, and obsolescence on a per-unit annual basis.