The economic order quantity calculator estimates how many units of a product to buy in each order to minimize annual ordering and holding costs. Use it for one item at a time, then check the result against supplier requirements, storage capacity, and demand patterns.
EOQ answers how much to order. It does not tell you when to reorder or how much safety stock to keep.
How to use the EOQ calculator
- Enter Annual Demand: the number of units you expect to sell or use in one year. Use units, not sales revenue.
- Enter Order cost: the fixed cost of placing and receiving one order, regardless of its size. Include relevant purchasing administration, fixed delivery charges, and receiving or inspection costs.
- Enter Holding Cost: the annual cost of carrying one unit in inventory. Include relevant storage, insurance, financing, shrinkage, and obsolescence costs.
- Read Economic Order Quantity: the estimated optimal number of pieces per order under the model’s assumptions.
Important unit clarification: although the Holding Cost field displays “per order,” the formula requires cost per unit per year. Do not enter the holding cost of an entire order or your total annual warehouse expense.
Use the same currency for both cost inputs and positive values for a meaningful calculation. A holding cost of zero makes the formula undefined.
How to estimate the cost inputs
Separate costs that occur once per order from costs that increase with the number of units purchased. For example, a fixed $60 delivery charge belongs in order cost; a $2-per-unit freight charge is not a fixed ordering cost.
If you estimate holding cost using an annual carrying-cost rate, multiply that rate by the unit’s inventory value. For example, a $20 item with an estimated 25% annual carrying-cost rate has a holding cost of $5 per unit per year. Estimate this amount separately before entering it.
When allocating warehouse expenses, use a consistent basis such as average space occupied. An item’s total allocated annual storage expense must still be divided by its average units held to produce a per-unit annual figure. Focus on costs that reasonably change with inventory levels rather than assuming every warehouse expense can be avoided.
The economic order quantity formula
EOQ = √(2 × D × C ÷ H)
- D: annual demand, in units per year.
- C: fixed ordering cost, in currency per order.
- H: annual holding cost, in currency per unit per year.
The formula balances two competing costs: larger orders mean fewer ordering transactions, but more inventory to store. Smaller orders reduce average inventory but require more frequent ordering.
For an order quantity Q, the basic model calculates the relevant annual cost as:
Annual ordering and holding cost = (D ÷ Q) × C + (Q ÷ 2) × H
Here, D ÷ Q is the expected number of orders per year, and Q ÷ 2 is average cycle inventory. That average assumes inventory is replenished in a single delivery and then consumed steadily, without safety stock.
Worked EOQ calculation
Using the calculator’s default values:
- Annual demand: 1,000 units
- Order cost: $100 per order
- Holding cost: $5 per unit per year
EOQ = √(2 × 1,000 × 100 ÷ 5) = √40,000 = 200 units per order
The following figures explain that result; they are supporting calculations rather than additional calculator outputs.
| Measure | Calculation | Result |
|---|---|---|
| Orders per year | 1,000 ÷ 200 | 5 |
| Average cycle inventory | 200 ÷ 2 | 100 units |
| Annual ordering cost | 5 × $100 | $500 |
| Annual holding cost | 100 × $5 | $500 |
| Combined annual cost | $500 + $500 | $1,000 |
At the theoretical EOQ, annual ordering cost equals annual cycle-stock holding cost. The $1,000 total excludes the purchase cost of the goods and other expenses outside this model.
How to apply the optimal order quantity
A higher EOQ means the model favors larger, less frequent orders—not that inventory management is necessarily better. Higher demand or ordering costs increase EOQ; higher holding costs reduce it.
Treat the result as a starting point for a purchasing decision:
- Check feasible quantities. Compare nearby case-pack sizes or quantities that meet a supplier’s minimum order.
- Check capacity and cash requirements. The formula does not account for limited shelf space, working capital, or product expiration.
- Compare annual costs. In the example, ordering 250 units instead of 200 produces $400 in ordering costs plus $625 in holding costs: $1,025 annually. That is $25 above the modeled minimum and may be acceptable if it meets a practical constraint.
EOQ is not a reorder point
Lead time does not appear in this calculator’s formula. It matters when deciding when to place the next order. A common approach is to set a reorder point equal to expected demand during replenishment lead time plus safety stock.
Plan safety stock separately to address demand or delivery uncertainty. Simply adding it to the EOQ does not establish an appropriate protection level or reorder policy.
When the basic EOQ model needs adjustment
The model assumes steady, predictable demand, constant ordering and holding costs, full replenishment in one delivery, and no planned stockouts. Real purchasing decisions may require additional analysis:
- Seasonal or rapidly changing demand: update the demand forecast and review orders more frequently. Replacing annual demand with one month’s demand while retaining annual holding cost creates inconsistent units.
- Quantity discounts: compare purchase cost, ordering cost, and holding cost at each eligible price tier. Supplier discounts can make a quantity other than the basic EOQ more economical.
- Variable delivery charges: freight thresholds, truckload rates, and surcharges may not behave like a fixed cost per order.
- Perishable goods or unreliable supply: consider shelf life, stockout consequences, and supplier performance alongside the cost estimate.
The purchase price is absent from the basic formula because, at a constant unit price, annual purchasing expenditure does not change with order size. However, unit value can still affect holding cost through financing, insurance, or other carrying expenses.
Recalculate when demand forecasts, supplier charges, or carrying costs change. Testing several plausible input values is more useful than treating an uncertain estimate as an exact purchasing instruction.
Related inventory measures
- Inventory turnover helps you assess how frequently inventory is sold or used. Use it to monitor actual performance after changing order quantities.
- Days inventory outstanding expresses inventory holding in days, helping you evaluate how long cash remains tied up in stock.
Lower inventory costs may improve your profit margin, but evaluate the effect alongside service levels and lost-sales risk. For broader operating planning, the margin of safety measures the sales cushion above break-even; it is different from inventory safety stock.
Build a replenishment savings calculator
A purchasing consultant or supplier could use Calcopolis to build a custom inventory savings calculator that compares a visitor’s current order size with an EOQ-based alternative, estimates potential annual savings, and supports a tailored quote request.