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FREE INVENTORY CALCULATOR

EOQ Calculator

Find the economic order quantity that balances ordering and holding costs.

  • Free to use
  • No sign-up required
  • Built for real inventory decisions

Calculator

units/year
Total units expected to be used or sold during one year.
$per order
Administrative, setup, receiving, or purchasing cost incurred each time an order is placed.
Holding Cost Input
$per unit
Unit purchase cost used to estimate the annual holding cost.
%
Annual inventory carrying cost as a percentage of unit cost.
units/order
Your current or typical order quantity, used to compare annual inventory costs.

Results

Calculated
Recommended EOQ400 units

Ordering about 400 units at a time balances annual ordering and holding costs under the entered assumptions.

Orders per Year25 ordersAnnual demand ÷ recommended EOQ
Days Between Orders14.6 daysBased on 365 days per year
Annual Ordering Cost$1,000(D ÷ Q) × S
Annual Holding Cost$1,000(Q ÷ 2) × H

Decision metrics

Total Relevant Cost$2,000/yearOrdering cost + holding cost
Holding Cost per Unit$5/yearUnit cost × holding rate
Current Order Quantity1,000 unitsYour entered ordering policy
Current Relevant Cost$2,900/yearAt your current order quantity
Potential Annual Savings$900/yearOrdering and holding costs only
Decision Insight

Your current order quantity is 1,000 units. Under the basic EOQ assumptions, ordering about 400 units at a time could reduce annual ordering and holding costs by approximately $900.

Cost Curve

EOQ sits near the lowest point of total relevant ordering and holding cost.

Annual Ordering CostAnnual Holding CostTotal Relevant Cost
EOQ cost curve
Lower order quantityEOQ: 400 unitsCurrent: 1000 unitsHigher order quantity

Key Takeaways

  • EOQ balances ordering cost and inventory holding cost.
  • Ordering more often lowers average inventory but increases ordering cost.
  • Larger orders reduce ordering frequency but increase carrying cost.
  • Purchase cost is excluded from relevant EOQ cost unless quantity discounts change the unit price.

How It Works

EOQ finds the order quantity where the trade-off between ordering more frequently and holding more inventory is minimized.

Estimate annual demand and the cost incurred each time an order is placed.

Estimate annual holding cost per unit, then compare ordering and holding costs to find the economic order quantity.

Formula

Formula 1

EOQQ* = √(2DS / H)

Formula 2

Annual Ordering Cost(D / Q) × S

Formula 3

Annual Holding Cost(Q / 2) × H

Formula 4

Total Relevant CostOrdering Cost + Holding Cost

Holding Rate

Holding Cost per UnitH = Unit Cost × Holding Rate

Where:

  • Q*: economic order quantity.
  • D: annual demand.
  • S: ordering cost per order.
  • H: annual holding cost per unit.
  • Q: order quantity used for the cost comparison.

Example Calculation

Let’s say:

  • Annual Demand: 10,000 units
  • Ordering Cost: $40/order
  • Unit Cost: $20
  • Holding Rate: 25%
  • Current Order Quantity: 1,000 units
Step 1: H = $20 × 25% = $5/unit/year. Step 2: EOQ = √((2 × 10,000 × 40) / 5) = 400 units. Step 3: 10,000 ÷ 400 = 25 orders/year, or 14.6 days between orders. Step 4: EOQ ordering cost = $1,000 and holding cost = $1,000, for a total relevant cost of $2,000. Step 5: Current Q of 1,000 gives a relevant cost of $2,900, so potential annual savings are $900.

Purchase cost is excluded because the unit price remains constant in this basic EOQ example.

How to Use the Result

  • Use EOQ as a planning quantity, then adjust for supplier minimum order quantities, packaging constraints, or operational needs.
  • Combine EOQ with the Reorder Point Calculator to decide both when to order and how much to order.
  • Recalculate when demand, ordering cost, unit cost, or carrying cost changes.
  • Compare the EOQ with your actual ordering policy before changing purchasing behavior.

Limitations

  • The basic EOQ model assumes reasonably stable demand.
  • Ordering cost and holding cost are assumed to be known and relatively stable.
  • The basic model assumes replenishment occurs without shortages during the ordering cycle.
  • Safety stock is not part of the core EOQ calculation.
  • Supplier minimum order quantities, case packs, storage capacity, cash constraints, and purchasing schedules may require adjustments.
  • Quantity discounts require a different EOQ analysis because unit purchase cost may change with order size.
  • Purchase cost is excluded from the relevant cost comparison when unit price is constant.
  • EOQ supports planning but does not replace demand forecasting or full inventory optimization.

Frequently Asked Questions

What is EOQ in inventory management?

EOQ is the order quantity that minimizes the combined annual cost of placing orders and holding cycle stock under the model assumptions.

What costs are included in EOQ?

The basic model compares ordering cost and annual holding cost. It does not include purchase cost when the unit price remains the same at every order quantity.

Why is purchase cost not included in the basic EOQ formula?

Without quantity discounts, annual purchase cost equals annual demand multiplied by unit cost, so it does not change when the order quantity changes.

What if my supplier has a minimum order quantity?

Use EOQ as a benchmark, then adjust to the supplier minimum and compare the resulting ordering and holding cost trade-off.

Does EOQ include safety stock?

No. Basic EOQ calculates cycle-stock quantity. Use a safety stock calculation separately when demand or lead time is uncertain.

How often should EOQ be recalculated?

Recalculate whenever demand, supplier ordering cost, unit cost, or carrying assumptions change materially.

What if I receive quantity discounts?

Quantity discounts change purchase cost by order size, so they require a discount-aware EOQ comparison rather than this basic model alone.

Can EOQ be used with the reorder point?

Yes. EOQ helps decide how much to order, while the reorder point helps decide when to place the order.