Economic Order Quantity (EOQ) Calculator
Find the raw material order quantity that minimizes total ordering and holding cost over a year.
EOQ = √(2 × Annual Demand × Order Cost / Annual Holding Cost per Unit)
Economic Order Quantity
548
units per order
Orders Per Year
11
purchase orders
Reference: order cost is what it costs to place and receive one PO (labor, shipping admin), not the unit price of $50.00.
The formula
Economic Order Quantity balances two costs that move in opposite directions as order size changes: ordering cost (which falls as you order less often) and holding cost (which rises the more inventory you carry). The formula finds the quantity where the two are minimized together:
EOQ = √(2 × D × S / H)
Where D is annual demand in units, S is the cost to place one purchase order, and H is the annual holding cost per unit.
Worked example: ordering wax for candle production
A candle maker uses 6,000 lbs of wax per year. Placing and receiving a purchase order costs about $50 in staff time and freight admin, and holding a pound of wax in inventory for a year — warehouse space, insurance, and tied-up cash — costs about $2.
EOQ = √(2 × 6,000 × 50 / 2) = √300,000 ≈ 548 lbs per order
At 548 lbs per order, the candle maker would place roughly 6,000 / 548 ≈ 11 orders per year — about one every 4-5 weeks — to minimize combined ordering and holding cost.
The caveat: MOQs and price breaks aren't in this formula
EOQ assumes you can order exactly the calculated quantity at a flat per-unit price. Real raw material suppliers rarely work that way. If the wax supplier's minimum order quantity is 750 lbs, the candle maker orders 750, not 548 — the formula's output becomes a floor to compare MOQs and price-break tiers against, not a number to hit exactly. Always check MOQ and volume pricing against the EOQ result before finalizing an order size.
Related calculations
Once you know how much to order, the safety stock calculator and reorder point calculator tell you when to place that order. See the full definitions of EOQ and carrying cost in the glossary, or read How to Calculate Reorder Points for Raw Materials.
Frequently asked questions
What is Economic Order Quantity (EOQ)?
Economic Order Quantity is the order size that minimizes the combined cost of placing purchase orders and holding inventory over a year. Ordering small and often keeps holding costs low but racks up ordering costs; ordering large and infrequently does the opposite. EOQ finds the quantity where those two costs are balanced.
What counts as "order cost" in the formula?
Order cost (S) is the cost to place and process one purchase order, not the price of the goods themselves — think staff time to create and send the PO, receiving and quality-check labor, and any fixed shipping or handling fee charged per order regardless of quantity. It should stay roughly constant whether you order 100 units or 1,000.
What counts as "holding cost" in the formula?
Holding cost (H) is the annual cost to keep one unit of that material in inventory — warehouse space, insurance, spoilage or obsolescence risk, and the opportunity cost of cash tied up in stock instead of earning returns elsewhere. It is commonly estimated as 15-30% of the per-unit purchase cost per year.
Does EOQ account for supplier minimum order quantities (MOQs)?
No, and this is the formula's biggest real-world gap for manufacturers. EOQ assumes you can order any quantity you want, but many raw material suppliers set an MOQ below which they won't sell, or offer price breaks at certain volumes. If a supplier's MOQ is higher than the EOQ result, order the MOQ instead and treat the difference as extra safety stock rather than fighting the formula.
Let Nstock track purchasing costs for you
Nstock tracks your real purchase order history and holding costs per material, so you can compare actual ordering patterns against EOQ instead of estimating order and holding costs by hand.