Free EOQ Calculator. Calculate the optimal order quantity to minimize inventory costs and improve cash flow.
Free EOQ Calculator. Calculate the optimal order quantity to minimize inventory costs and improve cash flow.
Generated: 1/13/2026, 7:18:48 AM | AskSMB.io
Total units sold or used per year
Cost to place and receive one order
Storage, insurance, and capital cost per unit per year
Holding cost must be greater than zero
Economic Order Quantity (EOQ) is a fundamental inventory management formula that determines the optimal order quantity a business should purchase to minimize total inventory costs. It balances the trade-off between ordering costs (costs incurred each time an order is placed) and holding costs (costs of storing inventory over time). By finding the sweet spot between these two costs, EOQ helps businesses reduce waste, improve cash flow, and maintain efficient inventory levels.
Annual Demand = Total units sold or used per year
Ordering Cost = Cost to place and receive one order
Holding Cost = Storage, insurance, and capital cost per unit per year
EOQ = √((2 × 10,000 × 50) / 2) = √(500,000) = 707.11 units
While EOQ is a powerful tool, it's important to understand its assumptions:
EOQ and JIT are different inventory strategies. EOQ focuses on finding the optimal batch size to minimize costs, while JIT aims to eliminate inventory by receiving goods only as needed. EOQ works well for businesses with predictable demand and storage capacity, while JIT suits manufacturers with reliable suppliers and steady production. Many businesses use a hybrid approach, applying EOQ principles while incorporating JIT elements for certain products.
EOQ directly impacts cash flow by preventing both understocking and overstocking. By ordering the right quantity, businesses avoid tying up excessive capital in inventory that sits in warehouses. This freed-up capital can be invested in growth opportunities, marketing, or operations. Additionally, EOQ reduces emergency ordering costs and rush shipping fees that occur when inventory runs too low. The result is more predictable cash flow and better working capital management.