Annual ordering, holding, and total cost at several order quantities relative to your EOQ, using the demand, costs, and unit price you entered. Total cost is lowest at the EOQ. Same formulas as the calculator.
Order quantity
Orders / year
Ordering cost
Holding cost
Total cost
50% of EOQ (224)
44.7
$2,236
$559
$2,795
75% of EOQ (335)
29.8
$1,491
$839
$2,329
EOQ (optimal) (447)
22.4
$1,118
$1,118
$2,236
150% of EOQ (671)
14.9
$745
$1,677
$2,422
200% of EOQ (894)
11.2
$559
$2,236
$2,795
Estimates only — not financial, tax, or professional advice.
Calculated in your browser — the numbers you enter are never sent to our servers.
What it calculates: Economic Order Quantity, Orders Per Year, Total Inventory Cost, Average Inventory (Units).
Ordering cost is incurred per order, so it falls as orders get larger and less frequent. Holding cost is incurred per unit held, so it rises with order size because average inventory is half the order quantity. Total cost is the sum, and it is a curve with a minimum.
At the optimum the two costs are equal, which is a useful check on any EOQ figure: compute both at the recommended quantity and they should match. If they do not, one of the inputs is not what it seems.
Being 20% off the optimum costs about 2% in total cost
The total cost curve is shallow around its minimum, so ordering somewhat more or less than the exact EOQ costs very little. Ordering 20% above or below the optimum raises total cost by roughly 2%.
That insensitivity is what makes EOQ practical despite inputs that are always estimates. It also means rounding to a case, pallet or truckload quantity is nearly free, and usually worth more in handling convenience than the precision it gives up.
It is more than warehouse rent
Holding cost should include the capital tied up in stock, storage and handling, insurance, and the cost of obsolescence, damage and shrinkage. Businesses that count only warehouse space typically land at 5% and understate the real figure, which is commonly 15% to 30% of unit cost a year.
The capital component is usually the largest and the most often forgotten: money sitting in inventory is money not available for anything else, and pricing it at your actual cost of capital is what makes the EOQ answer meaningful.
Steady demand, instant replenishment, no discounts
The formula assumes demand is constant and known, the full order arrives at once, lead time is fixed, and no stockouts occur. Real demand is variable and lumpy, which is why EOQ is paired with safety stock and a reorder point rather than used alone.
It also assumes a single unit price. Where a supplier offers quantity discounts, the optimum can jump to a price-break quantity that the plain formula never suggests — compare total cost at the EOQ against total cost at each break before deciding.
Frequently Asked Questions
What is the EOQ formula?
EOQ = √(2DS/H) where D = annual demand (units), S = ordering cost per order, H = holding cost per unit per year. This formula minimizes total inventory cost by balancing ordering frequency against inventory carrying costs.
What are inventory holding costs?
Holding costs include: storage/warehouse rent (2–5%), insurance (0.5–2%), inventory obsolescence/spoilage (1–3%), opportunity cost of capital tied up in stock (5–15%), and handling costs. Total holding costs typically run 20–30% of inventory value annually.
What is the reorder point?
Reorder Point = (Average Daily Demand × Lead Time) + Safety Stock. Order when inventory falls to this level to avoid stockouts during the replenishment lead time. EOQ tells you how much to order; ROP tells you when to order.
Does EOQ work for all businesses?
EOQ works best for commodity-type items with relatively stable demand. It’s less useful for seasonal products, custom/made-to-order items, perishables with short shelf life, or items with significant volume discounts.
Why is total cost roughly flat near the EOQ?
The total cost curve is fairly shallow around its lowest point, so ordering somewhat more or less than the exact EOQ raises cost only modestly. That is reassuring in practice: you can round the EOQ to a convenient case or pallet quantity without giving up much, as the scenarios table shows.
How do quantity discounts change the EOQ decision?
The basic EOQ ignores price breaks for larger orders. When a supplier offers a discount above a certain quantity, you have to weigh the saving on unit cost against the extra holding cost of ordering more, which can justify ordering above the plain EOQ. Comparing total cost at each price tier is the usual way to decide.
What happens if my demand estimate is wrong?
EOQ assumes demand is steady and known, so an inaccurate figure shifts the optimal quantity. Because the cost curve is shallow, small errors matter little, but a large misjudgment can lead to over- or under-ordering. Reviewing the inputs periodically and adding safety stock for variability helps protect against that.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Results are estimates for planning and analysis based on the figures you enter. They are not accounting, tax, or financial advice — verify with your own records and a qualified professional before making decisions.
Built and maintained by Jay Sudha, who runs a rice mill and trading business in Kashipur, India, and works with pricing, margins, working capital and bank credit as part of it.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested the square-root EOQ formula and confirmed the result is a genuine cost minimum by evaluating total cost either side of it.
Tested that ordering cost and holding cost are equal at the optimum, which is the defining property of the EOQ solution.
Frequently Asked Questions now show on the page: 7 answers, checked in a page-by-page audit.
What the calculation assumes and where it stops now show on the page.
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