Formula
EOQ = √(2 × D × S ÷ H), where D is the yearly demand, S the cost of each order (shipping, paperwork, receiving) and H the cost of holding one unit for a year (storage, insurance, money tied up).
Example
With a demand of 12,000 units a year, $50 per order and $2.40 to hold a unit for a year, the best order size is about 707 units, or about 17 orders a year.
Why it works
Ordering often means many order costs; ordering in bulk means high holding costs. The EOQ is where the two are equal and the total is lowest.
Frequently asked questions
How do I estimate the holding cost?
A common rule is 20% to 30% of the unit cost per year.
What if the supplier gives a discount for big orders?
Compare the total cost at the EOQ with the total cost at the discount quantity, including the savings on the price.
Does EOQ say when to order?
No. Combine it with the <a href="/reorder-point-safety-stock-calculator/">reorder point calculator</a>.
See also
Results are estimates for information only and are not financial, legal or medical advice. Rates, taxes and fees vary — confirm with a professional or your lender.