Economic order quantity calculator
The economic order quantity is the batch size that balances what it costs to place an order against what it costs to hold the stock. It assumes demand is steady and the whole delivery arrives at once.
Formula
Holding cost per unit per year = unit cost × holding rate EOQ = square root of (2 × annual demand × order cost / holding cost per unit) Orders per year = annual demand / EOQ Annual ordering cost = orders per year × order cost Annual holding cost = (EOQ / 2) × holding cost per unit Days between orders = 365 / orders per year
At the exact EOQ, annual ordering cost equals annual holding cost. Purchase cost, which is annual demand × unit cost, does not change the order size when the unit price is the same for every quantity.
Worked example
Annual demand is 1,200 units. Placing an order costs $50.00. The unit costs $20.00 and the holding rate is 20%, so holding one unit for a year costs $4.00. EOQ = √(2 × 1,200 × 50 / 4) = √30,000, about 173.21 units. A practical order is 173 units. Before that rounding, ordering cost and holding cost are each $346.41 a year.
FAQ
What does the economic order quantity balance?
It is the order size where the yearly cost of placing orders equals the yearly cost of holding the average stock those orders create. Ordering less often means larger batches and more stock on the shelf. Ordering more often means smaller batches and more purchase orders.
How is the holding cost set?
Holding cost per unit per year = unit cost × holding rate. A unit that costs 20, held at 20%, costs 4 a year to keep. The rate is yours to edit. Storage, the cost of money, damage, and insurance are the usual pieces. The page does not split them for you.
What assumptions does this use?
Demand is steady across the year, the whole order arrives at once, and the formula does not plan a stockout. Quantity discounts, a supplier's minimum order, and goods that expire are not in the square-root formula. Treat the result as a starting batch size, then round it to a case pack you can actually buy.
Why are ordering cost and holding cost equal at the answer?
That equality is what the square-root formula solves. In the worked example both sides are about 346.41 a year before you round the order to a whole unit. Rounding to 173 units moves the two costs a little apart, which is normal.
The result is a planning estimate from the numbers on this page. It is not an invoice, a tax filing, or a marketplace statement.