Skip to main content

Economic Order Quantity

What Economic Order Quantity?

Economic Order Quantity (EOQ) is the ideal quantity of units a company should purchase to meet demand while minimizing inventory costs, such as holding costs, shortage costs, and order costs. This model assumes constant demand, ordering, and holding costs.

Calculating Economic Order Quantity

EOQ is calculated using the formula:



  • D is the annual demand in units,
  • S is the ordering cost per order,
  • H is the holding cost per unit per year.

Benefits of Optimizing Order Quantity

  • Reduced Costs: Minimizes total inventory costs by finding the ideal balance between ordering too frequently (high order costs) and ordering too much (high holding costs).
  • Improved Cash Flow: Reduces money tied up in excess inventory, freeing up resources for other operational needs.
  • Enhanced Customer Satisfaction: Ensures products are available when needed, improving service and trust.
  • Efficient Use of Space: Optimizes warehouse space utilization by avoiding overstocking.

Economic Order Quantity vs. Just-in-Time Inventory

When comparing Economic Order Quantity (EOQ) and Just-in-Time (JIT) inventory management, it's essential to understand their differences and how they impact businesses. EOQ focuses on determining the optimal order quantity to minimize inventory costs, while JIT aims to reduce inventory levels by ordering and producing goods only when needed, eliminating excess stock and storage costs.

Critical Factors Affecting Economic Order Quantity

Key elements influencing EOQ include:

  • Demand Rate: Higher demand increases the frequency and volume of orders.
  • Ordering Costs: Lower ordering costs may encourage larger, less frequent orders.
  • Holding Costs: High holding costs incentivize minimizing inventory levels.
  • Lead Time: Longer lead times require more inventory on hand to prevent stockouts.

Implementing EOQ in Your Business

To effectively implement EOQ, businesses should:

  1. Gather Accurate Data: Ensure all inputs (demand, holding cost, order cost) are accurate.
  2. Regular Review: Periodically reassess EOQ calculations as business costs and demand patterns change.
  3. Integrate with Systems: Use ERP systems to automate EOQ calculations and inventory ordering processes.
  4. Monitor Performance: Continuously track performance against EOQ predictions to refine the model over time.

Other terms

Oops! Something went wrong while submitting the form.
00 items

80/20 Rule

The 80/20 Rule, also known as the Pareto Principle, asserts that 80% of outcomes result from 20% of all causes for any given event.

Read more

A/B Testing

A/B testing is a method for comparing two versions of a webpage or app to determine which one performs better based on statistical analysis.

Read more

ABM Orchestration

ABM Orchestration involves coordinating sales and marketing activities to target specific high-value accounts effectively.

Read more

AI Sales Script Generator

An AI Sales Script Generator is a tool that utilizes artificial intelligence, specifically natural language processing (NLP) and generation (NLG), to create personalized and persuasive sales scripts for various communication channels, such as video messages, emails, and social media posts.

Read more

AI-Powered Marketing

AI-powered marketing uses artificial intelligence technologies to automate and enhance marketing strategies.

Read more


In a sales, an account refers to a customer or organization that purchases goods or services from a company.

Read more

Account Click Through Rate

Account Click Through Rate (CTR) is a metric that measures the ratio of how often people who see an ad or free product listing end up clicking on it.

Read more

Account Development Representative

An Account Development Representative (ADR) is a specialist who works closely with a company's most important clients to build long-lasting, strategic partnerships.

Read more

Account Executive

An Account Executive is an employee responsible for maintaining ongoing business relationships with clients, primarily found in industries like advertising, public relations, and financial services.

Read more

Account Management

Account management is the daily management of client accounts to ensure they continue to do business with a company, focusing on showing clients the value they can enjoy if they continue to use the company's products or services.

Read more

Account Mapping

Account mapping is a strategic process that involves researching and visually organizing key stakeholders, decision-makers, and influencers within a target customer's organization.

Read more

Account Match Rate

An Account Match Rate is a measure of a vendor's ability to match IPs and other digital signals to accounts, which is essential for account-based sales and marketing.

Read more

Account View Through Rate

Account View Through Rate (AVTR) is a metric that measures the percentage of individuals who watch a video advertisement to the end, providing insights into the ad's effectiveness.

Read more

Account-Based Advertising

Account-Based Advertising (ABA) is a specialized component of Account-Based Marketing (ABM), focusing on targeting and engaging specific high-value accounts with personalized campaigns.

Read more

Account-Based Analytics

Account-Based Analytics is a method and toolset used to measure the quality and success of Account-Based Marketing (ABM) initiatives.

Read more

Account-Based Everything

Account-Based Everything (ABE) is the coordination of personalized marketing, sales development, sales, and customer success efforts to drive engagement with, and conversion of, a targeted set of high-value accounts.

Read more

Account-Based Marketing

Account-Based Marketing (ABM) is a business marketing strategy that concentrates resources on a set of target accounts within a market, employing personalized campaigns designed to engage each account based on their specific attributes and needs.

Read more

Account-Based Marketing Benchmarks

Account-Based Marketing (ABM) benchmarks are essential tools for B2B marketers aiming to achieve exceptional ROI.

Read more

Account-Based Marketing Software

Account-Based Marketing (ABM) software supports the implementation of ABM strategies, facilitating collaboration between marketing and sales teams and providing analytics to measure performance.

Read more

Account-Based Sales

Account-Based Sales (ABS) is a strategic approach in business-to-business (B2B) sales and marketing that focuses on building personalized relationships with specific high-value accounts.

Read more
Clay brand asset shaped as a 3D group of abstract objects made out of purple and pink clayClay brand asset shaped as a 3D group of abstract objects made out of purple and pink clay

Scale your outbound motion in seconds, not months

14 day free Pro trial - No credit card required

Try Clay free