EOQ Calculator
Calculate Economic Order Quantity to minimize inventory costs
About the EOQ Calculator
Every inventory replenishment decision involves a trade-off between two competing costs. Ordering in large batches reduces the number of orders you place per year (lowering ordering costs — freight, processing, admin) but forces you to hold more inventory on average (raising holding costs — storage, insurance, capital tied up in stock). Ordering in small batches keeps average inventory low but multiplies the number of orders and their associated costs. The Economic Order Quantity formula finds the batch size where these two costs are exactly equal — which is also the point where total inventory cost is at its minimum.
EOQ = √(2DS/H), where D is annual demand in units, S is the cost of placing one order in dollars, and H is the annual cost of holding one unit in dollars. At exactly this quantity, total ordering cost equals total holding cost. This calculator shows not just the EOQ result but also the orders per year at that quantity, the individual cost components, and a visual cost breakdown bar to illustrate the 50/50 balance that characterizes the optimal point. All calculations run in your browser.
How to Use the EOQ Calculator
- Enter your annual demand — the total number of units you expect to order or sell in a year.
- Enter the ordering cost per order — the total cost each time you place a replenishment order, including freight, purchase-order processing, and receiving labor.
- Enter the holding cost per unit per year — typically 20–30% of unit value, covering storage space, insurance, obsolescence risk, and the opportunity cost of capital.
- Review the EOQ result, the full formula breakdown, and the additional metrics: orders per year and the cost split between ordering and holding.
- Click "Copy Results" to capture all outputs for your inventory planning documentation.
Why Use ToolForge’s EOQ Calculator
- Step-by-step formula display: the results panel shows the full EOQ calculation — plugging in your actual numbers — so you can trace every step from the raw inputs to the final rounded quantity, not just read a black-box answer.
- Orders-per-year metric: dividing annual demand by the EOQ tells you how often to reorder, which feeds directly into your purchasing calendar and cash-flow planning.
- Cost breakdown bar: the visual bar illustrates the 50/50 ordering-versus-holding cost split that proves the EOQ is optimal. If you deviate from EOQ in either direction, one of the two bars would grow longer — showing the cost penalty.
- Real-time updates: results recalculate instantly as you change any input, making it easy to explore sensitivity — for example, how much does EOQ change if holding cost rises by 50%?
Frequently Asked Questions
What assumptions does the EOQ model make?
The classic EOQ model assumes demand is constant and known, lead time is fixed and known, ordering cost is the same for every order regardless of quantity, holding cost is linear with average inventory, and no quantity discounts are available. When these assumptions do not hold — seasonal demand, variable lead times, volume discounts — the basic EOQ is a useful starting point but should be adjusted with variants like the quantity discount model or stochastic demand models.
Why does the calculator show ordering cost equal to holding cost in the results?
At the EOQ, total ordering cost and total holding cost are always equal. This is a mathematical property of the formula: the derivative of total cost with respect to order quantity equals zero exactly when the two cost components are the same. If your ordering cost appears significantly different from your holding cost in the output, it usually means you have rounded the EOQ rather than using the exact unrounded value.
How do I estimate my holding cost per unit per year?
A standard rule of thumb is 20–30% of the unit's purchase cost per year. If a unit costs $10, the holding cost is roughly $2–$3 per year. The components include warehouse rent allocated per unit (square footage × rate ÷ units stored), insurance as a percentage of inventory value, write-off risk for perishable or obsolescence-prone stock, and the opportunity cost of the capital tied up in inventory (your cost of capital or WACC applied to average inventory value).
