Economic Order Quantity Calculator
The economic order quantity (EOQ) model finds the order size that minimizes the combined cost of placing orders and holding inventory. Order too infrequently and inventory piles up, tying up cash and increasing storage, insurance, and obsolescence costs. Order too frequently and administrative and supplier costs multiply. The EOQ balances these two cost curves at their combined minimum. This calculator uses the classic Wilson-Harris EOQ formula to compute the optimal order quantity, total annual inventory cost, number of orders per year, and time between orders. Enter your annual demand, ordering cost per order, and annual holding cost per unit to get started.
EOQ formula
EOQ = sqrt(2 * Annual Demand * Ordering Cost / Holding Cost Per Unit)
Orders Per Year = Annual Demand / EOQ
Days Between Orders = 365 / Orders Per Year
Total Cost = (EOQ / 2) * Holding Cost + (Annual Demand / EOQ) * Ordering Cost
Holding cost guidelines
- Holding cost typically runs 20 to 30% of unit inventory value per year.
- Components: cost of capital (10 to 15%), storage (3 to 5%), insurance and taxes (2 to 3%), shrinkage and obsolescence (2 to 5%).
- High-value or perishable items have much higher effective holding costs.
EOQ: frequently asked questions
What is economic order quantity?
Economic order quantity (EOQ) is the optimal order size that minimizes the total cost of inventory, which is the sum of ordering costs and holding (carrying) costs. The EOQ formula was developed by Ford Harris in 1913 and remains the foundation of inventory management.
What is the EOQ formula?
EOQ = sqrt((2 * Annual Demand * Ordering Cost) / Holding Cost Per Unit Per Year). The formula balances the trade-off between ordering too frequently (high ordering costs) and ordering too infrequently (high holding costs).
What is the ordering cost per order?
Ordering cost is the fixed cost of placing a purchase order, regardless of order size. It includes procurement staff time, supplier communication, receiving and inspection, and payment processing costs. Typical ordering costs range from $20 to $500 per order depending on the process.
What is the holding cost?
Holding cost (carrying cost) is the annual cost of storing one unit of inventory. It includes: cost of capital tied up in inventory (typically 10 to 20% of unit value), warehouse space, insurance, shrinkage, and obsolescence. As a percentage of inventory value, annual holding cost is often 20 to 30%.
What are the assumptions of the EOQ model?
The classic EOQ model assumes: demand is constant and known, ordering cost is fixed per order, holding cost is constant per unit, lead time is fixed, and no stockouts occur. In practice, safety stock is added to handle demand and lead time variability.
Sources
- U.S. Small Business Administration: Manage Your Business Finances.
- U.S. Census Bureau: Manufacturing Inventories Survey.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.