Economic order quantity (EOQ)
Economic order quantity is the order size that minimizes total inventory cost by balancing ordering costs against holding costs. The classic Wilson formula is √(2DS/H), where D is annual demand, S is cost per order, and H is annual holding cost per unit. EOQ answers how much to reorder each time.
How it's calculated
The Wilson formula finds the order size where ordering cost and holding cost are balanced and total cost is lowest:
EOQ = √(2DS/H)
D is annual demand in units, S is the fixed cost per order (admin, freight, receiving), and H is the annual holding cost per unit (storage, capital, spoilage).
Why it matters
EOQ answers "how much do I order each time?" — the companion to the reorder point's "when." Ordering in tiny batches racks up per-order costs and supplier minimums; ordering huge batches buries cash in stock and warehouse space. For Shopify merchants, EOQ gives a defensible, math-backed order quantity instead of guessing.
Track this automatically
Logistified calculates and monitors metrics like this across your whole Shopify catalog and turns them into reorder alerts and purchase orders.