Economic order quantity calculator
Find the order size that minimises combined ordering and holding costs, with orders per year, days between orders and the total annual cost at that quantity.
5.2 orders a year, roughly every 71 days
| Step | Working | Result |
|---|---|---|
| Holding cost per unit per year | 8 × 25% | $2.00 |
| Economic order quantityThe quantity where the cost of ordering more often equals the cost of holding more stock. | √(2 × 12000 × 450 ÷ 2) | 2,324 units |
| Orders per year | 5.2 | |
| Annual ordering cost | $2,323.79 | |
| Annual holding costAverage stock on hand is half the order quantity. | (2324 ÷ 2) × 2 | $2,323.79 |
The trade-off EOQ actually models
Order in small quantities and you order often, paying the fixed cost of an order many times a year. Order in large quantities and you order rarely, but you hold more stock for longer and pay to store, insure and finance it. Economic order quantity is the size at which those two costs are equal, which is also the point at which their sum is lowest. The formula is the square root of two times annual demand times cost per order, divided by annual holding cost per unit.
The curve around that minimum is flat, and that is the most useful property of the model. Being 20% away from the theoretical EOQ typically costs only a few per cent in total cost, which means EOQ is far better used as a sanity check on an order size chosen for practical reasons than as an instruction to order 1,847 units.
Adapting it for imported goods
The textbook cost per order is purchase-order administration. For an importer it is much larger and includes the fixed portion of inbound freight, the customs entry, brokerage, inspection and any inland leg that does not scale with quantity. Using the textbook figure understates the cost of ordering, which pushes the EOQ down and produces an answer that says to order more often than the freight economics allow.
Holding cost is the other input people underestimate. It is not just storage: it is the capital tied up in the stock, which for a self-funded business is the cost of not being able to buy something else, plus obsolescence risk, plus insurance. A holding cost of 20 to 30% of unit value per year is a more realistic starting point than a storage rate alone.
Finally, the real constraint is often the container. For a full-container importer the EOQ is a guide to which container size and how often, not a unit count — round it to a sensible container fill rather than treating it as gospel.
Questions people ask about this
Answers written from the published rules, not from other people's summaries of them. Every figure quoted below is listed with its source at the foot of this page.
Every formula on this siteWhat is the EOQ formula?
The square root of two times annual demand times cost per order, divided by the annual holding cost per unit. At that quantity, the cost of ordering more often exactly equals the cost of holding more stock.
Does EOQ work for imported goods?
With one adjustment: your cost per order has to include the fixed part of inbound freight, inspection and customs entry, not just the purchase-order admin. For a container-load importer the real constraint is often the container itself, so round the EOQ to a sensible container fill rather than treating it as gospel.
Does EOQ still work with supplier quantity discounts?
Not in its basic form, because the formula assumes unit cost is constant. With price breaks you have to compare the total annual cost at the EOQ against the total at each break quantity above it, including the lower unit price and the higher holding cost. The break quantity often wins, and sometimes by a lot. The practical method is to compute the EOQ first, then test each price break at or above it and take the lowest total — the answer is frequently the break, not the EOQ.
How do I work out my holding cost per unit per year?
Add the storage rate, the cost of capital, and an allowance for obsolescence and shrinkage, then express it against unit value. For an FBA seller, storage is a published rate you can compute from cubic feet — remembering the Q4 multiple. Cost of capital is whatever your money is genuinely worth: a loan rate if you borrow, or the return on the next best use of it if you do not. Most small importers land somewhere between 20 and 35% of unit value per year once all three are counted.
Should EOQ and reorder point be calculated together?
They answer different questions and both are needed. EOQ says how much to order; the reorder point says when to place that order. Getting one right and the other wrong still produces stockouts or excess. They also interact: a larger order quantity means fewer orders per year and therefore fewer opportunities to be caught short, which slightly reduces the safety stock a given service level requires. For most catalogues that second-order effect is small enough to ignore, but the sequence — quantity from EOQ, timing from reorder point — is not.
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Where these numbers come from
This calculator uses arithmetic rather than published rates — every figure comes from the values you enter. See the methodology page for the formulas behind it.
Page updated . Spotted something out of date? Tell us — corrections are published with the date they were made.
More on the working: every formula on this site, the full source register, what the terms mean, and how we decide what to publish. What an estimate here can and cannot support is set out in the accuracy notes.