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Economic Order Quantity (EOQ) Calculator

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Understanding the economic order quantity (EOQ) — concept and principle

The economic order quantity is the order size that minimises the combined yearly cost of placing orders and holding stock. Order too often and you pay a fixed cost per order (admin, delivery, set-up) many times; order too much at once and you tie up cash and space in inventory. Buyers, small retailers and production planners use EOQ as a starting point for how much to order each time. The calculator works with any currency.

Economic order quantityWith demand of 12,000 units, $80 per order and $2.50 a year to hold a unit, ordering 300 at a time costs $3,575 a year and 3,000 at a time $4,070. The EOQ of 876 makes the two costs equal at $1,095 each, $2,190.89 in total.Small, frequent orders or big, rare ones?e.g. 30040 orders$3,200$375$3,575EOQ 87613.69 orders$1,095$1,095$2,190.89e.g. 3,0004 orders$320$3,750$4,070ordering: orders × $80holding: half the batch × $2.50 a year
At the EOQ, ordering cost and holding cost are equal and their total is lowest.

How it is calculated

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 (storage, insurance, capital tied up, spoilage).

The principle

With order size Q, you place D ÷ Q orders a year, so ordering cost is (D ÷ Q) × S, which falls as Q grows. Stock runs down evenly from Q to zero, so average inventory is Q ÷ 2 and holding cost is (Q ÷ 2) × H, which rises as Q grows. The total is lowest where the two lines cross, at D × S ÷ Q = Q × H ÷ 2, which gives Q = √(2DS ÷ H). At that point ordering and holding cost are exactly equal, and their sum simplifies to √(2DSH). The model, first published by Ford W. Harris in 1913, assumes steady demand, a fixed price per unit, instant delivery and no shortages.

Worked example

  1. D = 12,000 units, S = $80, H = $2.50.
  2. EOQ = √(2 × 12,000 × 80 ÷ 2.5) = √768,000 ≈ 876.4, shown as 876 units.
  3. Orders per year = 12,000 ÷ 876.36 ≈ 13.69, about one order every 27 days.
  4. Ordering cost ≈ 13.69 × 80 = $1,095.45; holding cost ≈ 876.36 ÷ 2 × 2.5 = $1,095.45.
  5. Total = √(2 × 12,000 × 80 × 2.5) = $2,190.89 a year.

How to read the result

The cost curve is very flat near the optimum. Ordering 20% more or less than the EOQ raises total cost by only about 2–3%, so you can round to a pallet, case or supplier minimum without much penalty. The total excludes the purchase price itself, so do not compare it with your full inventory spend.

Common mistakes

Keep in mind: EOQ is a simplified model. It does not include safety stock, lead time, shortages or volume discounts, so treat the result as a guide rather than a final purchasing policy. It is not financial advice.

FAQ

Frequently asked questions

How do I estimate the holding cost?

A common approach is to take a percentage of the unit cost per year that covers interest on capital, storage, insurance and obsolescence, then multiply by the unit cost.

When should I reorder?

EOQ tells you how much to order, not when. The reorder point is usually daily demand × lead time in days, plus any safety stock.

Does EOQ work for services or digital goods?

Not really. It needs physical stock that costs money to hold and a fixed cost per order.

Sources: Harris, F. W. (1913). How Many Parts to Make at Once. Factory, The Magazine of Management, 10(2). · Silver, Pyke & Thomas — Inventory and Production Management in Supply Chains (CRC Press)

Checked 8 Nov 2026. Standard business and finance formulas. Estimates for information only.

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