Economic Order Quantity

EOQ gives a starting order size that balances two costs pulling in opposite directions: placing orders and holding stock. Ordering often keeps inventory low but adds purchasing, freight, and receiving work each time. Ordering rarely does the opposite. For example, a SKU selling 18,000 units a year, with $25 per order and $2.50 a year to hold each unit, has an EOQ of 600 units, or about 30 orders a year. Then adjust the result for supplier MOQs, price breaks, and how many units fill a carton or container.

EOQ = √(2 × annual demand × cost per order ÷ annual holding cost per unit)

Is EOQ useful for ecommerce brands?

It is a useful starting point for stable, repeat-purchase SKUs because it balances ordering costs against carrying costs. Supplier MOQs, volume discounts, container sizes, and seasonality usually require adjusting the result.

How do you calculate EOQ?

Multiply 2 by annual demand and by the cost per order, divide by the annual holding cost per unit, and take the square root. With 18,000 units, $25 per order, and $2.50 holding cost, EOQ is 600 units.

What is the difference between EOQ and MOQ?

EOQ is the order size that minimizes your own ordering and holding costs. MOQ is the smallest order a supplier will accept. When the MOQ is above your EOQ, you either accept higher holding cost or negotiate the MOQ down.

• Reorder PointROPStock level that triggers a new order
• Minimum Order QuantityMOQSmallest order a supplier will accept
• Carrying CostTotal cost of holding inventory over time
• Min/Max InventoryReorder at a minimum, refill to a maximum