Economic Order Quantity (EOQ) Calculator

EOQ (Economic Order Quantity) answers 'how much should I order each time?' Order too little and you pay too many ordering / shipping fees; order too much and you tie up cash in holding cost. The Wilson formula finds the order size where these two costs cross — the lowest total annual inventory cost.

The Wilson formula

Three inputs, one square root, one optimum order size:

EOQ = √( (2 × D × S) ÷ H ) where D = annual demand, S = cost per order, H = holding cost per unit per year

Worked example

Annual demand 1,200 units, ordering cost 10 per order, holding cost 0.60 per unit per year:

1. Economic order quantity = √((2 × 1,200 × 10) ÷ 0.60) = √40,000 = 200 units
2. Orders per year = 1,200 ÷ 200 = 6 orders
3. Total ordering cost = 6 × 10 = 60
4. Total holding cost = (200 ÷ 2) × 0.60 = 60
5. Annual total = 120 — the lowest achievable, and note that both sides are equal at that point

Practical tips

• Ordering cost is not the price of the goods: it is what the order itself costs you — buyer time, clearance, inspection and receipt documentation. In importing it also carries freight and the fixed charges per shipment, making it far larger than its domestic equivalent.
• The larger the ordering cost, the larger the economic quantity — which is why importers order bigger and less often. That is the result of the formula, not a departure from it.
• Compare the result against your supplier's minimum order quantity and container capacity: a theoretical quantity that cannot ship is not an option, so round up to the nearest real constraint.
• Holding cost covers tied-up capital, insurance, spoilage and space — not rent alone, or the quantity comes out larger than you can carry.