Economic Order Quantity (EOQ) Calculator
The order size that minimizes your combined ordering and holding costs — the classic Wilson formula, free and instant.
Fixed cost of placing one order.
Often 20–30% of unit value.
The EOQ (Wilson) Formula
EOQ = √( 2 × D × S ÷ H )
D = annual demand (units) · S = cost per order · H = holding cost per unit per year
Every order you place costs money regardless of size (admin, freight, receiving); every unit sitting in stock costs money over time (capital, storage, insurance, shrinkage). Small frequent orders minimize holding but maximize ordering costs; huge rare orders do the reverse. EOQ is the mathematical sweet spot where the two cost curves cross — at the EOQ, annual ordering cost exactly equals annual holding cost.
Worked Example
A shop sells 1,000 pairs of jeans a year. Each order costs $2 to place; holding one pair costs $5/year:
- EOQ = √(2 × 1,000 × $2 ÷ $5) = √800 ≈ 28 units per order
- Orders per year = 1,000 ÷ 28 ≈ 36 orders (roughly every 10 days)
- Combined ordering + holding cost ≈ $141/year — the minimum any order size can achieve
Estimating Your Holding Cost
Holding cost is the input people guess worst. Build it up from its parts, or use 20–30% of unit value as a defensible default:
- Cost of capital — the return that money could earn elsewhere (or your borrowing rate)
- Storage — warehouse space, utilities, handling
- Risk — shrinkage, damage, obsolescence, insurance
EOQ's Assumptions (and When to Bend Them)
The formula assumes steady demand, fixed per-order cost, and no volume discounts. Real businesses bend all three: seasonal products should use per-season demand, supplier price breaks can justify ordering above EOQ, and perishables cap order size at what sells before expiry. Treat the EOQ as your baseline, then adjust deliberately — and pair it with a reorder point so you know when to pull the trigger.
Frequently Asked Questions
Is the EOQ formula still relevant today?
Yes — the ordering-vs-holding trade-off it optimizes hasn't gone anywhere. Modern systems layer forecasting and dynamic adjustments on top, but the Wilson formula remains the baseline they refine.
What if my supplier has a minimum order quantity above my EOQ?
Order the MOQ — you have no choice — but now you know exactly what the constraint costs you versus optimal. That number is useful ammunition in supplier negotiations.
Should I round the EOQ?
Yes, to practical pack or case sizes. The total-cost curve is flat near its minimum, so ordering 25 or 30 when EOQ says 28 costs almost nothing extra.
Does EOQ account for stockouts?
No — it assumes you reorder in time. Stockout protection comes from your safety stock and reorder point; EOQ only sets the order size.
Optimize the Value, Not Just the Volume
EOQ manages units; valuation manages dollars. Upload your transactions for FIFO, LIFO, and Weighted Average results on your real inventory.
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