Inventory glossary

What is Economic order quantity?

Economic order quantity (EOQ) is the order size that minimizes the total cost of ordering and holding inventory for a product.

For a small Shopify store, ordering too often means paying more in shipping and supplier fees over time. Ordering too much means tying up cash in stock sitting on a shelf. EOQ gives you a single number that balances these two costs so you are not guessing.

Use it as a starting point, not a strict rule. Round the EOQ result up or down to match your supplier's case pack size, then check it against how fast the item actually sells before you commit to the order.

Formula

EOQ = sqrt((2 x D x S) / H)

Example

A candle store sells 1,200 units of one scent per year (D). Placing an order costs 20 dollars in staff time and shipping fees (S). Holding one unit in stock for a year costs 2 dollars (H). EOQ = sqrt((2 x 1200 x 20) / 2) = sqrt(24000) = about 155 units. The owner rounds this to 160 units, matching the supplier's case pack of 40.

Common mistakes

  • Using EOQ for products with uneven or seasonal demand, where the formula assumes steady sales.
  • Ignoring supplier minimum order quantities and case pack sizes, so the EOQ number can't actually be ordered as calculated.
  • Treating EOQ as fixed forever instead of recalculating it when sales volume, order costs, or holding costs change.

Economic order quantity and SteadyShelf

SteadyShelf does not calculate EOQ directly, but its quantity suggestions factor in forecasted demand and round to case packs, which covers the same practical goal.

Work it out for your own products with our free tool: Economic order quantity calculator.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Case pack · Reorder quantity · Holding cost · Carrying cost · Minimum order quantity

Full inventory glossary

FAQ

Does EOQ account for how fast a product sells?

Yes, annual demand is one of the three inputs, but EOQ assumes that demand is steady throughout the year. If sales spike or dip seasonally, the number becomes less reliable.

Should I order the exact EOQ number every time?

No. Treat it as a guide and round to your supplier's case pack or minimum order quantity. Exact EOQ numbers rarely match what suppliers will actually ship.

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