Our simple EOQ calculator ensures you can determine the “economic order quantity” when purchasing a product to sell on your online store. After all, part of ensuring you can make a consistent profit with your digital store, is knowing how much of a certain product you should have in stock at any given time. Purchase too much, and you risk spending over the odds on inventory.
On the other hand, if you don’t purchase enough inventory, you could risk missing out on all-important revenue, as consumers won’t be able to place orders whenever they want to. While EOQ is an important calculation for ecommerce store owners, it can be difficult to determine on your own.
We created this EOQ calculator so you can spend less time on math, and more time developing a high-quality, lucrative online store.
The EOQ Calculator
We used the latest technology to ensure our EOQ calculator is both easy-to-use and as accurate as possible. Rather than using complex formulas yourself, all you’ll need to do is enter a few details into the form fields below. Tell us how many units you typically sell of a specific product each year, and the costs associated with an order.
Next, enter your holding cost, or the amount you pay to store and handle the items you’re going to be purchasing in your store or warehouse. Scroll down, and our calculator will automatically generate an EOQ number, ideal for your purchasing plans.
What is EOQ? Economic Order Quantity
Economic Order Quantity, or “EOQ”, is the ideal number of units (products) a company should purchase to ensure it can both meet demand, and minimize inventory costs, such as shortage, order, and holding fees. This production scheduling model is relatively common, and was first introduced in 1913, by a man named Ford W. Harris.
The Economic Order Quantity strategy generally assumes that demand, ordering, and holding fees will typically remain consistent throughout the life of a product. However, if the fees associated with holding or purchasing your units change, you can always come back and use the calculator again.
Typically, the EOQ formula works best in situations where the demand for your products, as well as the price you’ll pay to order and store them, will remain consistent for as long as you hold the items. The overall purpose of the formula is to ensure you can minimize your cost for buying, storing, and delivering units, while also ensuring your customers can still make a purchase whenever they choose.
Why is EOQ Important?
The EOQ, or Economic Order Quantity for your store can be a valuable cash flow tool. Used correctly, this formula can help you control the amount of cash or budget you have tied up in inventory for your digital store.
After all, inventory is one of the most important assets you have as a retailer. You need to ensure you’re carrying sufficient inventory to match the needs of your customers, but you also don’t want to spend too much, and leave yourself with no budget to contribute to anything else.
Your EOQ calculations will also help you to determine the right inventory “reorder” point for your business. When the number of units you have in storage falls to a certain level, the formula will let you know you need to place an order for additional units. This helps to reduce the risk of your store running out of inventory, so you can consistently generate revenue.
Notably, EOQ does have some limitations too. The EOQ formula assumes that customer demand and the costs associated with ordering and holding units will remain consistent. This makes it difficult for the formula to account for changing customer demand, changes in seasonal inventory costs, and so on.
How Is EOQ Calculated?
The formula used to calculate EOQ can be quite complex. In most cases, business leaders will use the following calculation:
EOQ = √((2 x Demand x Ordering Cost) ÷ Carrying Costs)
In other words, the EOQ formula is the square root of two times the number of units you purchase, times the order cost, divided by the holding cost or carrying costs for your items. For instance, imagine you sell a line of shirts. You sell approximately 1000 shirts each year, spend $5 to hold the shirts, and the order cost for the item is $2. The average ideal order size would be around 28 shirts.
Keep in mind, the EOQ formula fails to account for any discounts you might give on your products, or any bundling prices associated with selling numerous products for a lower price. You also won’t be able to account for any sudden changes in seasonal demand.
Notably, your economic order quantity will also differ when the demand for your product goes up or down, or the setup costs associated with managing your inventory change.
If you’re struggling to define your EOQ using the formula above, our handy calculator will do all of the hard work for you, so you can focus on running and growing your online store.
Using EOQ Calculations on Your Online Store
Calculating Economic Order Quantity is an excellent way to improve the efficiency and potential profit of your online store. Using this formula correctly will help you to manage your inventory more efficiently, without having to worry about running out of stock when your customers are trying to place orders on your website.
Without EOQ, there’s a higher chance that you’ll end up holding too many products during periods of lower demand, or too few products during periods of higher demand. Part of what makes our EOQ calculator so useful, is that it’s dynamic, and can be revisited as your business evolves. If there’s a chance in your inventory costs or levels of demand, you can always use the calculator to generate a new EOQ based on current conditions.
With our calculator, you’ll be able to find a good balance for your order and inventory costs, to keep your company running effectively, and make sure you don’t miss out on any great sales opportunities.
