How do I calculate EOQ (economic order quantity)?

EOQ = the square root of (2 x annual demand x ordering cost per order) divided by the holding cost per unit per year. For example, with annual demand of 12,000 units, an ordering cost of Rs 500 per order and a holding cost of Rs 15 per unit per year, EOQ = sqrt((2 x 12,000 x 500) / 15) = sqrt(800,000) = about 894 units per order. This calculator computes it instantly along with orders per year and total cost.

What is the EOQ formula made of?

EOQ balances two opposing costs. Ordering cost is what each purchase order costs you in admin, freight and setup, so ordering more often raises it. Holding cost is what it costs to keep a unit in stock for a year (storage, capital, insurance, obsolescence), so ordering in bigger batches raises it. EOQ is the order size where total ordering cost equals total holding cost and the combined cost is at its minimum.

How many times a year should I order at EOQ?

Orders per year = annual demand divided by EOQ, and the interval between orders = 365 divided by that figure. With 12,000 annual demand and an EOQ of 894, you place about 13.4 orders a year, or one roughly every 27 days. EOQ tells you the order size; combine it with your reorder level to know when to place each order.

EOQ Calculator — Economic Order Quantity & Total Cost

Q: How do I estimate holding cost?

Holding cost per unit per year is often taken as a carrying-cost percentage of the unit value, typically 15 to 25 percent for Indian manufacturers. So a part worth Rs 100 with a 20 percent carrying rate has a holding cost of Rs 20 per unit per year. This calculator lets you enter the holding cost directly or as a percentage of unit cost.

This free EOQ calculator finds your economic order quantity — the order size that makes your total inventory cost as low as possible. Enter your annual demand, the cost of placing one order and the cost of holding a unit for a year, and it returns the EOQ, how many orders that means per year, the interval between orders, and the total annual cost. It works as an optimal order quantity calculator and a quick total inventory cost check.

How to calculate EOQ

The economic order quantity formula is:

EOQ = √( (2 × annual demand × ordering cost) ÷ holding cost per unit per year )

Worked example: with annual demand of 12,000 units, an ordering cost of ₹500 per order, and a holding cost of ₹15 per unit per year, EOQ = √((2 × 12,000 × 500) ÷ 15) = √800,000 ≈ 894 units. That means you place about 12,000 ÷ 894 = 13.4 orders a year, roughly one every 27 days, and your annual ordering and holding costs are each about ₹6,700 — balanced, which is the whole point of EOQ.

Why EOQ minimises cost

EOQ sits at the bottom of a U-shaped total-cost curve created by two opposing forces:

Ordering cost falls as you order in bigger batches (fewer orders, less admin and freight per unit).
Holding cost rises as you order in bigger batches (more stock sitting on the racks tying up cash and space).

Order too little and you pay too much in ordering costs; order too much and you pay too much in holding costs. The EOQ is the sweet spot where the two are equal and their sum is lowest. Because the curve is flat near the bottom, you do not have to hit EOQ exactly — ordering within 10–20% of it still keeps total cost close to optimal, which is handy when suppliers sell in fixed pack sizes.

Estimating ordering and holding cost

Ordering cost is everything it takes to raise and receive one purchase order: buyer time, approvals, inward inspection, and any fixed freight or setup. Holding cost is usually expressed as a carrying-cost percentage of the item’s value — typically 15–25% a year for Indian manufacturers once you include the cost of capital, storage, insurance, shrinkage and obsolescence. A ₹100 part at a 20% carrying rate has a ₹20/unit/year holding cost. This calculator lets you enter holding cost directly or as a percentage of unit cost.

EOQ, reorder level and safety stock together

EOQ answers how much to order; it works alongside two other numbers. The reorder level tells you when to order, and safety stock is the buffer that protects against variability. Used together: hold safety stock as the floor, order EOQ units each time on-hand stock drops to the reorder level. That trio is the backbone of lean, low-cost purchasing.

From a textbook formula to live purchasing

An EOQ calculator gives one optimal quantity for one item from costs you estimate by hand. In a live factory, demand and costs move and you manage hundreds of items. Inside OEMup ERP, economic order quantities, reorder levels and safety stock are computed per item from real consumption and actual ordering and holding costs, and the system suggests the right order quantity at the right time. Start free or see the inventory module.

EOQ Calculator — frequently asked questions

How do I calculate EOQ?

EOQ = √((2 × annual demand × ordering cost) ÷ holding cost per unit per year). With 12,000 demand, ₹500 ordering cost and ₹15 holding cost, EOQ ≈ 894 units. The calculator above does it instantly.

What does the EOQ formula balance?

Ordering cost (rises when you order more often) against holding cost (rises when you order in bigger batches). EOQ is the order size where the two are equal and total cost is minimised.

How do I estimate holding cost?

Usually as a carrying-cost percentage of unit value — typically 15–25% per year. A ₹100 part at 20% has a ₹20/unit/year holding cost. This tool accepts the cost directly or as a percentage.

How often should I order at EOQ?

Orders per year = annual demand ÷ EOQ; interval = 365 ÷ that. With 12,000 demand and EOQ 894, that is about 13.4 orders a year, one roughly every 27 days.

Need more shop-floor tools? Browse all free calculators, or try the Reorder Level Calculator and the Safety Stock Calculator.

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