Economic order quantity (EOQ) is the order size that costs you the least overall — balancing the cost of ordering too often against the cost of holding too much stock. Order more than the EOQ and holding costs pile up; order less and you pay to reorder too frequently.
≈ 10 orders/year
The EOQ formula
EOQ = √( (2 × D × S) ÷ H )
- D — annual demand in units (from your sales velocity × 365).
- S — cost to place one order (admin, freight, handling per order).
- H — cost to hold one unit for a year (storage, capital, insurance, spoilage).
Worked example
Demand 3,600 units/year, order cost $50, holding cost$3/unit/year. EOQ = √((2 × 3,600 × 50) ÷ 3) = √120,000 ≈ 346 unitsper order, or about 10 orders a year.
EOQ and the reorder point
EOQ tells you how much to order; the reorder point tells you when. Together they answer the whole purchasing question — order this quantity when stock drops to this level.
The limits of EOQ
EOQ assumes steady demand and fixed costs, so treat it as a starting point, not gospel. Supplier minimums, bulk discounts, shelf life and seasonality all shift the real answer. Blend it with your actual turnover and cash flow.
Automate the maths
Foreshelf reads your Shopify sales history to estimate demand and suggest reorder quantities per product — so you're not plugging numbers into a formula by hand for every SKU.