Find the order size that minimizes total inventory cost — balancing the cost of ordering against the cost of holding stock.
EOQ = √(2 × annual demand × order cost ÷ holding cost). It assumes steady demand and constant costs — the classic Wilson model. Real ordering also weighs lead time, quantity discounts, and safety stock, which EOQ ignores. General information only.
Order too often and ordering costs pile up; order too much and holding costs (storage, tied-up cash, spoilage) balloon. EOQ finds the sweet spot — the order size where those two costs are balanced and the total is lowest. It's a foundational inventory-management formula.
EOQ = √(2 × demand × order cost ÷ holding cost)
Lead time, safety stock, seasonal demand, and volume discounts. It's a strong starting point that real ordering policies adjust around.
Everything it costs to keep one unit in stock for a year — warehouse space, insurance, obsolescence, and the capital tied up in it, often estimated as 20–30% of the unit's value.
Related: inventory turnover calculator · sell-through rate calculator · break-even units calculator · all free calculators.
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