Economic order quantity (EOQ) is the order size that minimizes the total cost of ordering and holding inventory. It weighs the fixed cost paid each time you place an order against the cost of carrying stock over time. Order too little and you reorder constantly, piling up ordering costs. Order too much and you tie up cash and warehouse space in holding costs. EOQ finds the point where those two costs are lowest together.
How it works
The classic formula is the square root of (2 times annual demand times cost per order) divided by holding cost per unit per year. Annual demand is how many units you sell in a year, order cost is the fixed cost of placing and receiving one order, and holding cost is what it costs to keep one unit in stock for a year (storage, insurance, capital, spoilage). The result is the quantity to order each time to keep total cost at its minimum.
Why it matters
EOQ turns a guessing game into a repeatable number. It sets a sensible reorder quantity, informs safety stock and reorder points, and stops you from over-ordering slow movers or under-ordering fast ones. The model assumes steady demand and stable costs, so treat it as a baseline you adjust for seasonality, supplier minimums, and volume discounts.
Applied to B2B quoting on Shopify
When a wholesale buyer requests a large or recurring quantity, EOQ helps you decide the batch size you can commit to and at what price. If a quoted order sits near or above your EOQ, you often have room to offer a volume break without eroding margin, since the per-unit ordering cost drops. Knowing your own EOQ also helps you set realistic minimum order quantities inside a quote. See the B2B quoting glossary for related terms, or pricing for plan details.