EOQ Calculator

EOQ is the optimal quantity of inventory a business should order at one time to minimize its total inventory costs — specifically the combination of ordering costs and holding costs. It was developed by Ford W. Harris in 1913 and remains a foundational concept in supply chain and inventory management.

The EOQ formula is: EOQ = √(2DS / H), where D is annual demand (units), S is the ordering cost per order, and H is the holding cost per unit per year. The result gives the order quantity that balances ordering frequency against storage costs.

Without EOQ, businesses often over-order (tying up capital in excess inventory) or under-order (risking stockouts and lost sales). An EOQ calculator helps find the sweet spot that minimizes total inventory costs while keeping products available, improving cash flow and operational efficiency.

EOQ relies on three core inputs: Annual Demand (D) — the number of units sold or used per year; Ordering Cost (S) — the fixed cost each time an order is placed, such as shipping or processing fees; and Holding Cost (H) — the per-unit annual cost of storing inventory, including warehousing, insurance, and spoilage.

The classic EOQ model assumes that demand is constant and known, lead time is fixed, the entire order arrives at once, and there are no quantity discounts. In reality these conditions may vary, so EOQ should be treated as a baseline estimate rather than a rigid rule.

When you order more units at once, you maintain a larger average inventory sitting in your warehouse over time. More stored inventory means higher warehousing, insurance, and spoilage costs. EOQ minimizes this by balancing larger, less-frequent orders against smaller, more-frequent ones.

Average inventory under the EOQ model is simply EOQ ÷ 2. This assumes inventory depletes uniformly from a full EOQ quantity down to zero before the next order arrives, so on average you hold half the order quantity at any given time.

Ordering cost (also called cost per order or CPO) is the average total cost incurred each time you place a purchase order. It includes labour time spent processing the order, supplier communication, shipping and receiving fees, and any inspection costs. Divide your total annual ordering expenses by the number of orders placed to get a per-order figure.