EOQ Calculator
Economic Order Quantity using the textbook formula √((2 × D × S) / H). Find the order size that minimises the sum of ordering and holding cost across the year. Updates live as you type.
Inputs
Expected unit demand for this SKU across a full year. Monthly × 12 if you only have monthly.
Fixed cost per PO: admin time, supplier set-up, freight overhead, customs. Not the per-unit cost. £50–£150 is typical for offshore supply.
Cost to hold one unit for a year — capital + warehousing + insurance + obsolescence. Rule of thumb: 20–30% of unit cost.
Result
How to use the calculator
Three inputs, one number. The hardest part is usually nailing down your real order cost and holding cost — both are usually higher than people guess.
- 1
Enter annual demand (D)
Total units of this SKU you expect to sell or consume in a year. If you only have monthly demand to hand, multiply by 12 — EOQ assumes the demand is roughly steady across the year.
- 2
Enter order cost per order (S)
The fixed cost incurred every time you place a purchase order — admin time, supplier set-up, freight overhead, customs paperwork. Anything that doesn't scale with the size of the order. £25–£200 is typical for ecommerce.
- 3
Enter holding cost per unit per year (H)
The cost of holding one unit in stock for a full year — capital cost, warehousing, insurance, obsolescence risk. A common rule of thumb is 20–30% of the unit cost. Use the more accurate figure if you have it.
- 4
Read the EOQ
The number returned is the order quantity that minimises the sum of ordering and holding costs across the year. It's the size each PO should be at to keep total inventory cost as low as possible.
- 5
Use orders-per-year and cycle time as sanity checks
If the calculator says 47 orders per year and your supplier MOQ is 200 units, the maths is telling you to renegotiate the order cost or the MOQ — not to actually place 47 POs. EOQ is the floor for what's economically optimal, not a delivery instruction.
The EOQ formula, briefly
The formula is:
Three inputs do the work. D is annual demand in units. S is the fixed cost per order — admin, freight overhead, supplier set-up, customs paperwork. H is the cost of holding one unit in stock for one year — capital, warehousing, insurance, obsolescence.
It exists because total annual inventory cost has two moving parts. Order in big batches and you pay less ordering cost but hold more average inventory (so holding cost rises). Order in small batches and the reverse. EOQ is the order size where the two costs are equal — and where their sum is minimised.
Connected concepts: reorder point, safety stock, lead time, and inventory turnover.
What actually changes the answer
Annual demand (D)
EOQ scales with the square root of demand. Doubling demand only raises EOQ by √2 ≈ 1.41×. The implication: faster sellers don't need proportionally bigger orders — just slightly bigger ones, placed more often.
Order cost (S)
Square-root scaling again. Halve the order cost — fewer admin steps, batched POs, automated reordering — and EOQ drops to 71% of its previous value. Smaller, more frequent orders become economic.
Holding cost (H)
Higher holding cost — premium warehouse space, high cost of capital, fast obsolescence — pushes EOQ down. Same square-root relationship in reverse. Fashion brands and electronics typically run with H far above 30% of unit cost.
Supplier MOQs and discounts
Quantity discounts (price breaks at higher volumes) almost always pull the optimum above EOQ — sometimes substantially. Supplier MOQs can pull it the other way. Use EOQ to size policy and identify when MOQs are uneconomic; don't treat it as a delivery instruction.
Common EOQ mistakes
- →Forgetting freight overhead in order cost. If freight has a per-shipment fixed component, it's part of S. Brands that omit it routinely under-size EOQ and over-order.
- →Using cost of capital alone as holding cost. Real holding cost is 2–3× the cost of capital once warehousing, handling, insurance, and obsolescence are included.
- →Treating EOQ as a delivery target. EOQ is the economically optimal lot size given the inputs. It doesn't account for cash flow constraints, container loading economics, or shelf life. Use it as the floor for the conversation, not the final answer.
- →Applying one EOQ across the catalogue. EOQ is per-SKU — every product has its own D, and may have its own S and H. Slow movers and fast movers shouldn't share an order policy.
Frequently asked questions
What is the EOQ formula?+
Economic Order Quantity = √((2 × D × S) / H). D is annual demand in units. S is the fixed cost per order (admin, freight overhead, supplier set-up). H is the holding cost of one unit for one year (capital, warehouse, insurance, obsolescence). The result is the order quantity at which ordering cost and holding cost are equal — and the total cost is at its minimum.
Where does the EOQ formula come from?+
Total annual cost has two parts: ordering cost (D/Q × S — more orders means more ordering cost) and holding cost (Q/2 × H — bigger orders mean higher average inventory). The two move in opposite directions as you change order quantity Q. Differentiate the total with respect to Q, set it to zero, and you get Q* = √((2DS) / H). At Q*, ordering cost equals holding cost — that's the inflection point.
Is EOQ still relevant for modern ecommerce?+
Yes — but as a baseline, not a delivery rule. EOQ tells you the economically optimal order size if demand were steady, supply were certain, and there were no volume discounts. None of that is true for most consumer brands. But the formula reveals the trade-off: if your orders are well above EOQ you're holding too much capital in stock; well below and your ordering overhead is bleeding margin. Use it to size policy, not individual POs.
What should I use for order cost (S)?+
Add up everything that costs money every time you place an order, regardless of order size: ops time to raise + chase the PO, supplier set-up fees, the fixed component of freight (the per-shipment cost, not the per-unit cost), customs paperwork, QC sampling. For UK/EU ecommerce buying from Asia, £50–£150 per order is typical. For domestic suppliers with low admin, £15–£40.
What should I use for holding cost (H)?+
The rule of thumb is 20–30% of unit cost per year. Components: cost of capital (10–15%), warehousing and handling (5–10%), insurance (1%), obsolescence and shrinkage (2–5%, much higher for fashion or perishables). If you have your actual numbers — finance can usually pull them — use those. If not, 25% of landed unit cost is the safest default.
What does the result mean if my MOQ is much higher than the EOQ?+
Two interpretations. Either the order cost (S) you entered is too low, or the holding cost (H) is too high, or your supplier MOQ is forcing you into uneconomic batch sizes. In the third case, the answer isn't to ignore EOQ — it's to use the gap as a negotiation lever. A supplier holding you to 5x EOQ is asking you to finance their production planning.
How does EOQ relate to reorder point and safety stock?+
EOQ answers 'how much to order'. Reorder point answers 'when to order'. Safety stock is the buffer that protects the reorder point against variance. The three together form the classic continuous-review inventory policy: when stock hits the reorder point, place an order of EOQ size; the safety stock cushions the gap if demand or lead time runs hot. None of the three is useful in isolation.
When does EOQ break down?+
Three places. (1) Highly variable demand — EOQ assumes the demand rate is roughly constant; if it isn't, the holding-cost half of the equation is wrong. (2) Quantity discounts — if your supplier prices step down at volume breaks, the optimum often jumps to the next discount tier, not the EOQ. (3) Perishable or fast-obsolescing stock — fashion, food, electronics. For these, holding cost rises sharply with time-in-stock and EOQ overstocks. Use cycle-stock policies designed around the constraint instead.