What is economic order quantity?
Economic order quantity (EOQ) is the order size that minimises the combined cost of ordering and holding stock. Ordering often in small batches keeps storage cheap but multiplies order costs; ordering rarely in bulk does the opposite. EOQ is the point where the two costs are equal.
Formulas
EOQ = √(2 × annual demand × cost per order ÷ holding cost per unit)Total cost = (demand ÷ EOQ) × cost per order + (EOQ ÷ 2) × holding cost
Worked example
With demand of 12,000 units a year, 75.00 per order and 2.00 to hold a unit for a year, the EOQ is 948.68 units. That means 12.65 orders a year, one every 28.9 days, at a total cost of 1,897.37.
How to use the economic order quantity calculator
- Enter your figures: annual demand, cost per order and holding cost per unit per year.
- Read the result. It updates as you type, so there is no button to press.
- Try other numbers to compare scenarios. Reset brings back the example values.
Getting it right
- Cost per order is the admin, delivery and receiving cost of one order, not the price of the goods.
- Holding cost per unit covers storage, insurance, spoilage and the cost of money tied up, often 15–30% of the unit’s value a year.
- Round the result to a pack or pallet size. Total cost changes very little close to the EOQ.
Frequently asked questions
What is the EOQ formula?
EOQ equals the square root of two times annual demand times the cost per order, divided by the annual holding cost per unit.
What does EOQ assume?
It assumes steady demand through the year, a fixed cost per order, a fixed holding cost per unit and delivery of the whole order at once. It is less accurate for seasonal or highly variable items.
Why are ordering cost and holding cost equal in the result?
Total cost is lowest exactly where the falling ordering cost curve meets the rising holding cost curve, so at the EOQ the two annual costs match.