Transparent method
The formula
Worked example
Example inputs
How to interpret the result
EOQ balances two costs that move in opposite directions as order size changes. Ordering more at once lowers the annual number of orders and their associated costs, while raising the average inventory sitting in storage and the holding cost that comes with it, and the formula finds the specific order size where those two opposing costs are minimized together.
Before you rely on it
What to check
Stress-test the EOQ result against realistic swings in demand and lead time, since the formula's clean answer assumes both stay steady, an assumption real ordering rarely holds exactly.
The common error
Where people go wrong with economic order quantity calculator
Treating the EOQ figure as a fixed, permanent order quantity rather than a starting point sensitive to its own assumptions. Real demand variability and supplier lead-time changes can shift the genuinely optimal order size away from the calculated figure.
Sensitivity evidence
How annual unit demand changes the economic order quantity
| Annual unit demand | Economic order quantity | Estimated orders per year | Estimated annual ordering and holding cost |
|---|---|---|---|
| 9,600 | 379.5 | 25.3 | $3,795 |
| 10,800 | 402.5 | 26.8 | $4,025 |
| 12,000worked example | 424.3 | 28.3 | $4,243 |
| 13,200 | 445 | 29.7 | $4,450 |
| 14,400 | 464.8 | 31 | $4,648 |
Every input, tested
Which input moves the economic order quantity most
| Input | Tested from | To | Economic order quantity at each end | Swing |
|---|---|---|---|---|
| Annual unit demand | 10,800 | 13,200 | 402.5 to 445 | 42.5 (10%) |
| Unit cost | $36 | $44 | 447.2 to 404.5 | 42.7 (10%) |
| Cost per order | $68 | $83 | 404 to 446.3 | 42.3 (10.0%) |
| Annual holding-cost rate | 23.0% | 27.0% | 442.3 to 408.2 | 34.1 (8.0%) |
Two variables at once
Economic order quantity by annual unit demand and cost per order
| Annual unit demand \ Cost per order | $60 | $75 | $90 |
|---|---|---|---|
| 9,600 | 339.4 | 379.5 | 415.7 |
| 10,800 | 360 | 402.5 | 440.9 |
| 12,000 | 379.5 | 424.3 | 464.8 |
| 13,200 | 398 | 445 | 487.4 |
| 14,400 | 415.7 | 464.8 | 509.1 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Annual unit demand | 12,000 |
| Cost per order | $75 |
| Unit cost | $40 |
| Annual holding-cost rate | 25.0% |
| Economic order quantity | 424.3 |
| Estimated orders per year | 28.3 |
| Estimated annual ordering and holding cost | $4,243 |
Where the inputs come from
Annual unit demand is how many units you sell or use in a year, taken from sales history. Cost per order is the fixed cost of placing one order, including purchasing time, shipping and receiving, unaffected by order size. Unit cost is the purchase price, and the annual holding-cost rate is the yearly cost of holding a dollar of inventory, covering capital, storage, insurance and obsolescence, often 20% to 30%. The model assumes steady demand.
Using the economic order quantity in a real decision
Volume discounts can change the answer.
When the result stops applying
The classic model assumes constant demand, instant delivery, no shortages and constant costs, none of which is fully true. Quantity discounts, minimum order sizes, shelf life and storage limits shift the best quantity. Highly seasonal or unpredictable items need safety stock on top. Ordering cost is often understated.
What to compare it with
Add safety stock and the trigger for reordering with the reorder point and safety stock calculators, and see the inventory carrying cost and turnover pages for the cost of holding stock. The pallet loading calculator helps turn the order quantity into shipments.
People also ask
Frequently asked questions
What does EOQ minimize?
The total of ordering costs and holding costs. Larger orders reduce ordering cost but raise holding cost, and EOQ balances the two.
Does EOQ account for volume discounts?
Not in the basic formula. If a supplier offers a price break, compare the total cost at the discounted quantity with the EOQ cost.
How often should I recalculate EOQ?
Whenever demand, ordering costs or holding costs change materially, which for many businesses means at least once a year.