Economic order quantity (EOQ) is the order size that keeps your total inventory cost lowest by balancing two forces that pull in opposite directions: the cost of placing orders and the cost of holding stock. The formula is EOQ = square root of ( (2 x annual demand x ordering cost per order) / annual holding cost per unit ). Enter your three numbers in the calculator below to get your ideal order quantity, how often to reorder, and the annual cost at that quantity, and read on for the worked example.
A free tool to work out how much to order at a time so you are not reordering constantly or sitting on cash you have tied up in stock.
Order too little at a time and you are placing purchase orders constantly, paying the setup, freight, and admin on each one over and over. Order too much and the cash sits on your shelf as stock you are paying to store, insure, and finance. Economic order quantity is the middle: the single order size where those two costs are as low as they can be together. It is one of the oldest ideas in inventory planning, and it still gives a surprisingly useful starting number.
Most people who reach for an EOQ calculator want their own figure rather than a lecture, so the tool comes first and the explanation second. There is also an honest section below on when a rough estimate is genuinely all you need, and how EOQ fits alongside the two questions it does not answer on its own: when to reorder and how much buffer to keep.
EOQ calculator
What is economic order quantity and how is it calculated?
Economic order quantity answers one question: how many units should I buy in a single order? It works by trading off two costs that move in opposite directions as you change the order size.
- Ordering cost is what it costs you to place and receive one order, regardless of size: the purchasing admin, the setup, the fixed part of freight and handling. Order in bigger batches and you place fewer orders a year, so this cost falls.
- Holding cost is what it costs to keep a unit in stock for a year: storage, insurance, obsolescence, and the cash you have tied up. Order in bigger batches and your average stock on hand is higher, so this cost rises.
EOQ is the order size where the total of those two is at its lowest. The formula is:
EOQ = square root of ( (2 x annual demand x ordering cost per order) / annual holding cost per unit )
The three inputs are:
- Annual demand (D) — how many units you sell or use in a year.
- Ordering cost per order (S) — the fixed cost of placing one order, whatever its size.
- Annual holding cost per unit (H) — what it costs to carry one unit in stock for a year.
Holding cost per unit is the one people find hardest to pin down. A common way to estimate it is to take the unit cost of the item and multiply by an annual carrying-cost rate, a percentage that rolls up storage, insurance, shrinkage, obsolescence, and the cost of capital. If a unit costs $10 and you use a 20% carrying-cost rate, your holding cost is $2 per unit per year. The rate is a judgement call, so it is worth revisiting rather than treating as fixed forever. Qoblex’s guide to economic order quantity (checked 2026-07-24) walks through the same formula and how each input is built up.
Worked example, step by step
Say you sell a steady 5,000 units a year, it costs you $50 to place and receive an order, and carrying one unit in stock costs you $2 a year. So D = 5,000, S = $50, and H = $2.
Put those into the formula:
- EOQ = square root of ( (2 x 5,000 x 50) / 2 )
- = square root of ( 500,000 / 2 )
- = square root of 250,000
- = 500 units
So the order size that keeps your total inventory cost lowest is 500 units. From that, everything else follows:
- Orders per year: 5,000 / 500 = 10 orders.
- Order roughly every: 365 / 10 = about 36.5 days.
- Annual ordering cost: 10 orders x $50 = $500.
- Annual holding cost: average stock is half the order size, so (500 / 2) x $2 = $500.
- Total annual inventory cost: $500 + $500 = $1,000.
Notice that at the EOQ the annual ordering cost and the annual holding cost come out equal, $500 each. That is not a coincidence: it is the whole point of the formula. The lowest total sits exactly where the two costs balance, and either side of 500 units the total creeps back up. Load these figures into the calculator above and you should land on exactly those numbers.
When is a rough estimate enough, and what EOQ does not tell you
EOQ is a planning aid, not a rule you have to obey to the unit. It rests on some tidy assumptions: steady, predictable demand, a stable ordering cost, and a holding cost you can put a number on. Real ordering is lumpier than that, so treat the answer as a sensible starting quantity, then round it to a practical batch, a pallet, a supplier minimum, or a case pack, rather than ordering 500 units to the unit.
A rough estimate is genuinely enough when your demand is low or steady, your prices are stable, and you reorder infrequently. In that situation, eyeballing a comfortable order size gets you close, and the difference between the perfect EOQ and a round number nearby is usually small in dollars, because the total-cost curve is fairly flat near the bottom. There is no need to over-engineer it.
It is also worth being clear about what EOQ does not answer. EOQ tells you how much to order, not when. Those are two separate questions, and you need both to run a shelf without stockouts:
- How much to order in one go: that is EOQ, the tool above.
- When to place the order: that is your reorder point, the stock level that triggers a new purchase given your lead time.
- How much buffer to hold against demand and lead-time surprises: that is your safety stock, which EOQ ignores entirely because it assumes demand is perfectly steady.
Used together, the three give you a full ordering policy: order this much (EOQ), when stock drops to this level (reorder point), keeping this much in reserve (safety stock).
How Qoblex fits in
The calculator above is a planning aid you drive by hand. Qoblex does not replace that judgement, and it does not automatically compute an EOQ for you. What it does is keep the numbers you would feed into a calculation like this in one place: your stock levels, your sales velocity, your purchase orders, and your unit costs, all current, so the inputs you would otherwise pull together from a spreadsheet are already sitting where you can see them.
That matters because an EOQ is only as good as the demand and cost figures behind it. When your sales history and costs live in the same system as your purchasing, you can spot when demand has shifted enough to rerun the number, and you can turn a decision about how much to order into an actual purchase order without re-keying anything. Your accounting platform stays your book of record: Qoblex handles the operational inventory and purchasing while QuickBooks Online or Xero keeps the ledger. For current plans, see qoblex.com/pricing.
FAQ
What is economic order quantity (EOQ)? EOQ is the order size that minimises your total inventory cost by balancing ordering cost against holding cost. Order in small batches and you place more orders, raising ordering cost; order in large batches and you hold more stock, raising holding cost. EOQ is the quantity where the two are as low as possible together.
What is the EOQ formula? EOQ = square root of ( (2 x annual demand x ordering cost per order) / annual holding cost per unit ). Annual demand is your yearly unit usage, ordering cost is the fixed cost of placing one order, and holding cost is the annual cost of carrying one unit in stock.
How do I estimate the holding cost per unit? A common approach is to take the item’s unit cost and multiply by an annual carrying-cost rate, a percentage covering storage, insurance, shrinkage, obsolescence, and the cost of capital. For example, a $10 unit at a 20% carrying-cost rate gives a holding cost of $2 per unit per year.
Why do ordering cost and holding cost come out equal at the EOQ? Because the lowest total cost sits exactly where the two curves cross. Below the EOQ, ordering cost dominates; above it, holding cost does. At the EOQ they are equal, which is why in the worked example both come to $500 for a total of $1,000.
Does EOQ tell me when to reorder? No. EOQ only tells you how much to order at a time. When to place the order is your reorder point, which depends on your lead time and demand, and how much buffer to hold is your safety stock. EOQ assumes steady demand, so it ignores the variability that safety stock is there to cover.
Is EOQ still useful if my demand is not perfectly steady? Yes, as a starting number. Real demand is lumpier than the formula assumes, so treat the EOQ as a sensible order size to round to a practical batch, supplier minimum, or case pack, rather than a figure to follow to the unit. The total-cost curve is fairly flat near the bottom, so a round number close to the EOQ costs little more.
