Economic Order Quantity (EOQ) Calculator

How to Use This Tool

Enter your annual demand, order cost, and holding cost information. You can specify holding cost as a fixed amount per unit per year or as a percentage of the unit cost. Click Calculate to see the EOQ and a breakdown of annual costs. Use Reset to clear all fields and start over.

Formula and Logic

The EOQ formula is: EOQ = √((2 × D × S) / H), where D is annual demand, S is order cost per order, and H is holding cost per unit per year. If holding cost is given as a percentage (i) of unit cost (C), then H = C × i/100. The calculator also computes the number of orders per year (D/EOQ), total ordering cost (S × D/EOQ), total holding cost (H × EOQ/2), and total inventory cost (ordering + holding).

Practical Notes

For accurate results, ensure your demand and cost figures are annualized. Order cost includes shipping, handling, and administrative expenses. Holding cost should include storage, insurance, capital, and obsolescence costs. In practice, EOQ assumes constant demand and fixed costs, which may vary. Consider safety stock for demand fluctuations. For businesses with seasonal sales, use average annual demand. The model works best for items with steady usage and independent demand.

Why This Tool Is Useful

EOQ helps businesses reduce inventory costs by optimizing order quantities. Over-ordering increases holding costs, while under-ordering increases ordering costs and risk of stockouts. This calculator provides a quick, data-driven way to make purchasing decisions, improve cash flow, and free up warehouse space. It's particularly valuable for small businesses and e-commerce sellers managing large catalogs of SKUs.

Frequently Asked Questions

What if my demand is not constant?

EOQ assumes steady demand. For variable demand, use average annual demand and consider adjusting with safety stock. For highly seasonal products, you might need a different model like periodic review.

How do I estimate holding cost?

Holding cost includes storage rent, utilities, insurance, taxes, capital opportunity cost, and expected obsolescence. A common rule of thumb is 20-30% of the unit cost per year, but calculate your actual costs for accuracy.

Can EOQ be used for perishable goods?

EOQ is less suitable for perishable goods with limited shelf life because the holding cost model doesn't account for spoilage. For perishables, consider shorter planning horizons and more frequent orders.

Additional Guidance

When implementing EOQ, integrate it with your reorder point system. The reorder point should cover lead time demand and safety stock. Regularly review your EOQ as costs change. For bulk discounts, you may need to adjust order quantities to take advantage of price breaks, even if it means deviating from the classic EOQ. Use this calculator as a starting point and refine based on your business context and market conditions.