Free Economic Order Quantity (EOQ) calculator
Find the order size that makes inventory cheapest to run. Enter your annual demand, cost per order, and holding cost per unit to get the economic order quantity, how many orders that means per year, your reorder cycle, and the total annual inventory cost — updated live, as you type.
On this page14 sections
Estimates only, based on the values you enter. Not financial advice.
Results are estimates. Consult a professional.
What is economic order quantity (EOQ)?
Economic order quantity is the order size that makes inventory cheapest to run. It is the number of units to buy in each order so that the combined cost of ordering and holding stock falls to its lowest point. Order too little and you reorder constantly, piling up order costs. Order too much and stock sits on the shelf, piling up holding costs. EOQ is the single quantity that balances the two. The calculator above returns it the moment you enter your demand and costs.
EOQ answers one question: how much to order each time. It does not tell you when to place the order — that is the job of the reorder point, covered further down. Together they form a continuous-review inventory system: EOQ sets the batch size, the reorder point pulls the trigger.
The EOQ formula and its three inputs
The formula needs only three numbers. Each one has a precise meaning, and getting them right matters more than the square root itself.
- Annual demand (D) — the total units you expect to sell or use in a year. Pull it from sales history or a demand forecast, not a single busy month.
- Cost per order (S) — the fixed cost of placing one order, whatever its size: purchase-order processing, supplier setup, inbound freight, receiving and inspection. It does not include the price of the goods.
- Holding cost per unit (H) — the annual cost of keeping one unit in stock: warehousing, insurance, obsolescence, shrinkage, and the capital tied up in that unit. It is often estimated as 15–30% of the item's unit cost per year.
How to calculate EOQ: a worked example
A shop sells 10,000 units of one product a year. Each purchase order costs $40 to place, and holding one unit in stock costs $5 a year. What order size keeps total inventory cost lowest?
Step 1 — Put the numbers into the formula
Annual demand D = 10,000 units, order cost S = $40, holding cost H = $5 per unit. EOQ = √(2 × 10,000 × 40 ÷ 5) = √160,000 = 400 units.
Step 2 — Work out how often to order
Orders per year = demand ÷ EOQ = 10,000 ÷ 400 = 25 orders. Spread across the year, that is one order roughly every 14.6 days (365 ÷ 25).
Step 3 — Add up the total annual cost
| Cost component | Calculation | Amount |
|---|---|---|
| Annual ordering cost | 25 orders × $40 | $1,000 |
| Annual holding cost | (400 ÷ 2) × $5 | $1,000 |
| Total annual inventory cost | ordering + holding | $2,000 |
Holding cost uses average inventory, which is half the order size (200 units), because stock runs down from 400 to 0 between deliveries.
Ordering cost vs holding cost: the trade-off EOQ balances
The two costs in EOQ move in opposite directions. Order in big batches and you place fewer orders, so ordering cost drops — but average inventory rises, so holding cost climbs. Order in small batches and the reverse happens. Total cost is the sum of the two, and it bottoms out where they cross.
Here is the insight most calculators skip: at the EOQ, annual ordering cost exactly equals annual holding cost. In the worked example both land at $1,000. This is a property of the formula, not the chosen numbers — the total-cost curve is flat at its minimum, which is also why being a little off the EOQ barely raises cost. You do not need the order size to be perfect, just close.
What the EOQ result tells you
The calculator returns four numbers beyond the order quantity. Read them together, not in isolation:
- Orders per year — how many purchase orders you will raise for this item. A high count may signal the order cost is understated or a supplier minimum should override the EOQ.
- Days between orders — the natural reorder cycle. Compare it to your supplier's lead time: if lead time is longer than the cycle, you will have more than one order in transit at once.
- Annual ordering cost and holding cost — these should be roughly equal at the EOQ. If your software shows them far apart, an input is wrong.
- Total annual cost — the figure to minimize and to track over time as demand and costs shift.
EOQ is a per-item answer. Run it for each SKU that ties up meaningful cash, then prioritize using an inventory turnover read to see which items move fast enough to be worth the attention.
EOQ assumptions and when they break
EOQ is a model, and every model rests on assumptions. The basic formula assumes demand is steady and known, the cost per order and holding cost per unit are constant, stock arrives all at once with no delay, and no quantity discounts apply. Real operations rarely match all of these. Knowing where they break tells you when to trust the number and when to adjust it.
| Assumption | When it breaks | What to do |
|---|---|---|
| Demand is constant and known | Seasonal or spiky sales | Recalculate by season, or add safety stock to the reorder point |
| No quantity discounts | Supplier offers price breaks | Compare EOQ total cost against the discount tier with a price-break model |
| Constant order and holding costs | Costs rise with volume or inflation | Re-run EOQ when costs move materially |
| Stock arrives instantly | Long or variable lead times | Use a reorder point with safety stock to cover the lead-time gap |
| No supplier minimum | Minimum order quantity above the EOQ | Order the minimum; the EOQ is a floor, not a hard rule |
The flat-bottomed cost curve means small deviations from the EOQ cost little — so these adjustments rarely hurt much.
EOQ vs reorder point and safety stock
EOQ and the reorder point answer different questions. EOQ is how much to order; the reorder point is when to order. They are used together, not as alternatives.
Safety stock is the extra inventory kept above expected demand to absorb surprises — a demand spike or a late shipment. The basic EOQ model assumes none is needed because demand and lead time are certain. In practice you size the reorder point with safety stock, then keep ordering in EOQ-sized batches each time stock falls to that point.
Frequently asked questions about EOQ
What is economic order quantity in simple terms?
It is the order size that costs the least to run. Ordering more often raises order costs; ordering in bigger batches raises holding costs. EOQ is the quantity where the two balance and total cost is lowest.
How do you calculate EOQ?
EOQ = the square root of (2 × annual demand × cost per order ÷ annual holding cost per unit). For 10,000 units a year, a $40 order cost, and a $5 holding cost, EOQ = √(2 × 10,000 × 40 ÷ 5) = 400 units.
What is the difference between EOQ and reorder point?
EOQ tells you how much to order; the reorder point tells you when. EOQ fixes the batch size, while the reorder point is the stock level that triggers each new order to land before you run out.
Does the total annual cost include the price of the goods?
No. Total annual inventory cost here is ordering cost plus holding cost only. The purchase cost of the goods is excluded because it stays the same regardless of order size, so it does not affect the optimal quantity.
What is a good holding cost percentage to use?
When you do not have a precise figure, 15–30% of an item's unit cost per year is the common range. It bundles storage, insurance, obsolescence, shrinkage, and the cost of capital tied up in the stock.
Sources and further reading
The EOQ formula used here is the classic Wilson model: EOQ = √(2DS/H), with total annual inventory cost defined as ordering cost plus holding cost. Definitions follow standard managerial-finance and operations-management references.
Corporate Finance Institute — Economic Order Quantity (EOQ) formula and guide.Supply Chain Management: An Integrated Approach (Pressbooks) — 8.3 Economic Order Quantity (EOQ).Wikipedia — Economic order quantity (model, assumptions, and total-cost derivation).Frequently asked questions about the free Economic Order Quantity (EOQ) calculator
About this economic order quantity (EOQ) calculator
This calculator runs entirely in your browser — nothing you type is sent anywhere or stored. It uses the classic Wilson EOQ model, EOQ = √(2DS/H), to find the order size that minimizes the combined cost of ordering and holding inventory, then shows the orders per year, the reorder cycle in days, and the total annual inventory cost. All results recompute instantly as you adjust the inputs.
Looking for related tools? Browse the rest of our business calculators or the full calculator library.