What is the economic order quantity formula?
Economic order quantity is the order size where ordering costs and holding costs are lowest in total. It equals the square root of twice annual demand times the cost per order, divided by the annual holding cost per unit. At that quantity the two costs are equal.
Economic Order Quantity Calculator formula
EOQ = square root of (2 x Annual demand x Cost per order / Annual holding cost per unit)
Worked example: Demand of 5,000 units, 50 per order and 3 holding cost per unit gives an EOQ of 408 units, about 12.25 orders a year, with ordering and holding costs both 612.37.
How this works in your browser
The result is the square root of (2 x annual demand x ordering cost) divided by holding cost per unit per year, the classic Wilson formula. It works by balancing two opposing curves: ordering cost falls as batches get larger while holding cost rises, and their sum is at its minimum where the two are equal. Because the relationship sits under a square root the curve is flat near the optimum, which is genuinely useful in practice: ordering somewhat above or below the exact EOQ costs very little. Everything is computed locally.
Who uses Economic Order Quantity Calculator
Setting order sizes
Replace a habitual order quantity with one grounded in your actual costs.
Reviewing purchasing
Check whether current batch sizes are costing you more than they need to.
Evaluating bulk discounts
Compare a supplier deal against the cost of holding the extra stock.
Teaching inventory theory
See how ordering and holding costs trade off against each other.
Frequently asked questions
What is the EOQ formula?
The square root of two times annual demand times cost per order, divided by the annual holding cost per unit. The square root is why the answer moves less than people expect: doubling your demand raises the optimal order size by about 41%, not 100%.
What counts as an ordering cost?
The fixed cost of raising one order regardless of its size: the admin time, the approval, the goods-in processing, and any flat delivery charge. Not the cost of the goods themselves, which is the most common mistake and produces a nonsensically small answer.
What counts as a holding cost?
Everything it costs to keep one unit for a year: warehouse space, insurance, shrinkage, obsolescence, and the cost of the capital tied up. Many businesses count only storage and so understate it badly; a fifth to a quarter of unit value per year is a common working figure.
Is EOQ realistic?
It is a model, and its assumptions are worth knowing: steady demand, fixed costs, no bulk discounts and instant replenishment. Real ordering rarely matches all four. Treat the answer as a sanity check on your current order size rather than a rule, particularly where a supplier offers volume pricing.
Are my cost figures stored?
No. The calculation runs in your browser.