Economic Order Quantity & The Order Size That Costs Least

EOQ is the order size that makes the combined cost of ordering and holding stock as small as possible. Order too little and you pay the fixed ordering cost again and again; order too much and you tie up cash and pay to store it. The EOQ is the sweet spot between the two, found with EOQ = √(2 × annual demand × order cost ÷ holding cost per unit).

EOQ = √(2 D S ÷ H), where D is annual demand in units, S is the fixed cost of placing one order, and H is the cost of holding one unit for a year. For example, 10,000 bags of feed a year, a 500 ordering cost and a 4 holding cost give EOQ = √(2 × 10,000 × 500 ÷ 4) = √2,500,000 ≈ 1,581 bags per order.

Orders per year = annual demand ÷ EOQ. With a demand of 10,000 units and an EOQ of about 1,581, that is roughly 6.3 orders a year — about once every two months. The tool shows this directly so you can turn the order size into a practical reorder rhythm for feed, fertilizer or seed.

Ordering cost is the fixed cost of placing and receiving a single order, regardless of size — paperwork, delivery or freight charges, the trip to the supplier, and inspection or handling on arrival. It does not include the price of the goods themselves. A higher ordering cost pushes the EOQ up, because it pays to order more at once and order less often.

Holding cost is what it costs to keep one unit in store for a year — the interest on the cash tied up, storage space, insurance, and spoilage or shrinkage. A higher holding cost pushes the EOQ down, because storing stock is expensive so you order smaller, more frequent lots. For perishable or pest-prone inputs, set this higher.

At the EOQ, total annual cost = (demand ÷ EOQ) × order cost + (EOQ ÷ 2) × holding cost — the ordering cost and the holding cost are balanced and their sum is at its minimum. The tool reports this lowest total so you can see what your inventory actually costs and compare it against ordering in your current, possibly larger or smaller, lots.

EOQ assumes steady demand and stock that does not expire, so it fits non-perishable, year-round inputs like fertilizer, packaging or stored feed well. For highly perishable or strictly seasonal items, treat the EOQ as a guide and lower it — capture the spoilage risk by entering a higher holding cost, which the formula will translate into smaller, more frequent orders.

The EOQ and total cost are exact for the inputs you give, but they are only as good as your estimates of demand, ordering cost and holding cost. Real demand fluctuates and supplier terms change, so treat the EOQ as a target order size, round it to a practical pack or truck-load, and re-run it when your costs move.