Supply Chain Inputs
Annual Demand
Total units you expect to sell or use over a full year.
Cost Metrics
Fixed cost each time you place an order, such as flat-rate freight or admin labor.
What you pay your supplier for one unit of the product.
Yearly cost to store one unit as a share of its value. Industry standard is usually 15 to 25 percent to cover warehousing, insurance, and depreciation.
Optimal Order Quantity (EOQ)
775
units per order
Expected Orders Per Year
12.9
orders placed annually
To minimize your supply chain costs, you should place 12.9 orders per year of exactly 775 units. This optimally balances your freight costs against your warehouse storage fees.
Cost Balance at Your Optimal Order Size
Total Annual Ordering Cost
$1,935.48
freight and setup costs
Total Annual Holding Cost
$1,937.50
warehouse and storage costs
Balanced: ordering and holding costs are nearly equal at the EOQ
Total Annual Inventory Cost $3,872.98
Annual Holding Cost / Unit
$5.00
unit cost x holding %
Annual Demand
10,000
units per year
Days Between Orders
28
approx. order cycle
See also: once you know your optimal order size, decide when to place each order with the Inventory Reorder Point Calculator, and measure how efficiently you sell through that stock with the Inventory Turnover Ratio Calculator.
Key Terms Explained
EOQ (Economic Order Quantity)
The single order size that produces the lowest total annual inventory cost by balancing ordering costs against holding costs. Order this amount each time to spend the least overall.
Setup Cost / Ordering Cost
The fixed cost incurred every time you place an order, regardless of size. It covers flat-rate freight, purchase order admin, receiving labor, and supplier setup fees.
Holding Cost / Carrying Cost
The yearly cost of keeping one unit in stock: warehouse rent, insurance, spoilage, obsolescence, and the opportunity cost of cash tied up in inventory. Usually 15 to 25 percent of unit value.
Annual Demand
The total number of units you expect to sell or consume over a full year. EOQ assumes this demand is steady and predictable across the year.
Annual Holding Cost per Unit (H)
The dollar cost to store one unit for a year. Calculated as your Cost per Unit multiplied by your Annual Holding Cost Percentage. This is the H value in the EOQ formula.
Total Annual Inventory Cost
The sum of your total annual ordering cost and total annual holding cost. EOQ is the order size that drives this combined number to its minimum.
Orders per Year
How many times you place an order in a year, found by dividing Annual Demand by the EOQ. Fewer, larger orders lower ordering cost but raise holding cost.
Order Cycle
The average time between two orders, found by dividing the days in a year by your orders per year. It tells you roughly how often you will be placing a purchase order.

The Complete Guide to Economic Order Quantity

Every time you reorder stock you face a hidden tug of war. Order in big batches and you save on freight and paperwork, but you pay more to warehouse the extra inventory. Order in small batches and your storage costs drop, but your freight and admin costs climb because you are ordering constantly. The Economic Order Quantity is the mathematically proven order size that sits exactly at the bottom of that trade-off, where your total annual cost is as low as it can possibly go.

The EOQ formula

The model was first published by Ford Whitman Harris in 1913 and is still the foundation of modern inventory management. It works out the order size where total ordering cost and total holding cost cross over and balance.

Annual Holding Cost per Unit (H) = Cost per Unit x (Holding Cost Percentage / 100)
EOQ = square root of ( (2 x Annual Demand x Cost per Order) / H )

Because you cannot physically order a fraction of a product, this calculator rounds the EOQ up to the next whole unit. From there it derives the rest of your supply chain picture: expected orders per year, total ordering cost, total holding cost, and the combined total annual inventory cost.

How to use this calculator

Enter your Annual Demand in units, your Cost per Order (the fixed cost of placing one order, such as flat-rate freight), your Cost per Unit, and your Annual Holding Cost Percentage. Results update instantly with no submit button. The big number on the left is the exact quantity to order each time. The number beside it tells you how many of those orders you should place over the year.

Why ordering cost and holding cost are equal at the EOQ

This is the heart of the model and the easiest way to confirm the math is working. As your order size grows, ordering cost falls and holding cost rises. The total cost curve bottoms out precisely where those two lines intersect, which is the point where total annual ordering cost equals total annual holding cost. In the receipt above you will notice the two cost columns land at almost the same value. That near-equality is the visual signature of a correct EOQ, and it is why the optimal answer feels balanced rather than lopsided.

What the holding cost percentage really covers

Many businesses underestimate this figure. A realistic annual holding cost percentage rolls together warehouse rent and utilities, insurance on the stored goods, shrinkage from theft or damage, spoilage and obsolescence, and the opportunity cost of capital locked up in inventory instead of earning a return elsewhere. For shelf-stable, low-value goods it may sit near 15 percent. For refrigerated, fragile, or fast-obsolescing products such as electronics and fashion it can climb well past 25 percent.

Knowing the limits of the model

EOQ assumes steady demand, a fixed cost per order, a fixed holding rate, instant replenishment, and no bulk discounts. Real supply chains bend those rules. If a supplier offers a price break for ordering a larger quantity, the cheaper unit cost can outweigh the extra holding cost, so you should compare the EOQ result against the discounted scenario. Treat the EOQ as a strong, defensible baseline, then layer in safety stock for demand swings and lead time variability.

Frequently Asked Questions

What is the Economic Order Quantity (EOQ) formula? ▼
The Economic Order Quantity formula is EOQ = the square root of (2 times Annual Demand times Cost per Order, divided by the Annual Holding Cost per Unit). Annual Holding Cost per Unit is your Cost per Unit multiplied by your Annual Holding Cost Percentage. The result is the single order size that produces the lowest total annual cost once you add ordering costs and holding costs together. Because you cannot buy a fraction of a physical product, the answer is rounded up to the next whole unit.
Why are ordering costs and holding costs equal at the EOQ point? ▼
Ordering cost and holding cost move in opposite directions as your order size changes. Ordering a large batch means you place fewer orders per year, so total ordering cost falls, but you hold more average inventory, so holding cost rises. Ordering small batches does the reverse. The total cost curve is lowest exactly where these two opposing forces balance, which is the point where total annual ordering cost equals total annual holding cost. That balance point is the EOQ, which is why a correct EOQ result always shows the two cost columns at nearly the same value.
What does the holding cost percentage usually include? ▼
The annual holding cost percentage captures every cost of keeping one unit on the shelf for a year, expressed as a share of that unit's value. It typically includes warehouse rent and utilities, insurance on the stored goods, spoilage, breakage, and obsolescence, plus the opportunity cost of the cash tied up in inventory that could have earned a return elsewhere. Most businesses land between 15 and 25 percent. Industries with refrigeration, high theft risk, or fast obsolescence such as electronics or fashion often sit at the higher end or above.
What are the limitations of the EOQ model? ▼
The classic EOQ model assumes a steady, constant rate of demand throughout the year, a fixed cost per order, a fixed holding cost percentage, instant replenishment, and no quantity or bulk discounts from suppliers. Real supply chains rarely match those assumptions. If your supplier offers price breaks for larger orders, if demand is highly seasonal, or if freight rates change with volume, the simple EOQ figure is a strong starting estimate rather than an exact answer. Use it as a baseline, then adjust for discounts, lead time variability, and safety stock needs.
Is this EOQ calculator free and private? ▼
Yes. This calculator is completely free with no signup required, and every calculation runs entirely inside your own web browser. None of the demand figures, cost values, or results you enter are uploaded, saved, or sent to any server, so your supply chain data stays private on your device.
This calculator is for informational and planning purposes only. Results are estimates based on the values you enter and assume steady demand with no bulk discounts. Consult a qualified supply chain or financial professional before making purchasing decisions.