Economic Order Quantity (EOQ) – Explained for Small Shops

EOQ (Economic Order Quantity) is the order size that minimizes total cost—ordering cost plus holding cost. Part of our inventory management guide.

Why EOQ Matters

Order too small → you order often → high ordering cost (transport, time, paperwork).
Order too large → you hold more stock → high holding cost (storage, spoilage, capital locked).

EOQ finds the sweet spot.

The Formula

EOQ = √(2 × Annual demand × Order cost ÷ Holding cost per unit per year)

Example: Demand 1,200 units/year, order cost ₹200, holding ₹10/unit/year.
EOQ = √(2 × 1200 × 200 ÷ 10) = √48,000 ≈ 219 units. Order 219 each time.

When It Works Best

• Steady, predictable demand
• Known order and holding costs
• Single product or treat each SKU separately

Limitations

EOQ assumes constant demand. For seasonal items or erratic sales, use reorder points and safety stock instead.

Use our EOQ Calculator to find your optimal order size. Stockkeeper helps track demand so you can refine EOQ over time. Join the waitlist.