The economic order quantity (EOQ) determines how much you should optimally order to minimize costs. Many hospitality entrepreneurs order too frequently in small quantities or too infrequently in large quantities, causing them to lose money on ordering and storage costs. In this article you'll learn the EOQ formula and how to apply it practically in your kitchen.
What is the economic order quantity?
The economic order quantity (EOQ - Economic Order Quantity) is the optimal amount you should order to minimize your total inventory costs. It balances two opposing costs:
- Ordering costs: Time, administration, delivery per order
- Storage costs: Space, energy, capital tied up, spoilage
Order too frequently? Then your ordering costs are high. Order too large quantities? Then your storage costs are high.
The EOQ formula for hospitality
The standard EOQ formula is:
EOQ = √(2 × Annual consumption × Ordering costs) / Storage costs per unit
💡 Example: Olive oil calculation
Restaurant uses 240 bottles of olive oil per year:
- Annual consumption: 240 bottles
- Ordering costs: €15 per order (time + administration)
- Purchase price: €8 per bottle
- Storage costs: 20% of purchase price = €1.60 per bottle per year
EOQ = √(2 × 240 × €15) / €1.60 = √7.200 / 1.60 = √4.500 = 67 bottles
Optimal: 67 bottles per order, order approximately 4 times per year
Determining ordering costs
Ordering costs are often higher than you think. Add up:
- Time to order: 30 minutes × €25/hour = €12.50
- Administration: Processing invoice, paying = €5
- Receiving delivery: 15 minutes × €25/hour = €6.25
- Storing and checking: 10 minutes × €25/hour = €4.17
Total ordering costs: approximately €15-30 per order, depending on your hourly rate.
⚠️ Note:
Don't just count delivery costs, but also your own time. That costs money too.
Calculating storage costs
Storage costs consist of:
- Capital costs: Money tied up in inventory (15-25% per year)
- Storage space: Refrigeration, freezer, dry storage
- Insurance and risk: Theft, spoilage, damage
- Energy: Cooling, lighting
For hospitality, 20-30% of the purchase price per year is a common storage cost.
💡 Example: Storage costs calculation
Product costs €10 per unit:
- Capital costs: €10 × 20% = €2.00
- Storage space: €0.50 per year
- Insurance/risk: €0.30 per year
- Energy (cooling): €0.20 per year
Total storage costs: €3.00 per unit per year = 30%
Adjusting EOQ for perishable products
The standard EOQ formula works well for shelf-stable products. For fresh products you need to account for:
- Spoilage percentage: 5-15% for vegetables, 2-8% for meat
- Shelf life: Maximum inventory = shelf life in days
- Seasonal fluctuations: Summer/winter differences
For fresh products: order more frequently, smaller quantities. EOQ provides a guideline, but let shelf life be your guide.
Practical application in your restaurant
Use EOQ for your top 20 ingredients that make up 80% of your purchasing value:
- Dry products: Rice, pasta, oil, wine - follow EOQ strictly
- Chilled products: Meat, fish, dairy - EOQ as guideline, shelf life is decisive
- Fresh products: Vegetables, fruit - order daily/every other day
💡 Example: Restaurant purchasing strategy
Bistro with €8,000 monthly purchases:
- Dry inventory: Apply EOQ, order once every 6 weeks
- Meat/fish: EOQ as basis, order 2 times per week
- Vegetables: Daily fresh delivery
- Beverages: Apply EOQ, order monthly
Result: 40% fewer ordering costs, 25% less waste
Digital tools
Calculating EOQ manually takes time. Many hospitality entrepreneurs use apps like KitchenNmbrs to:
- Automatically track consumption per ingredient
- Calculate optimal order quantities
- Get reminders when to order
- Immediately factor in supplier price changes
This saves time and prevents you from ordering too much or too little.
How do you calculate the economic order quantity? (step by step)
Determine your annual consumption per product
Add up how much of each main ingredient you use per year. Check your purchase invoices from the last 12 months or estimate based on weekly consumption × 52 weeks.
Calculate your ordering costs per order
Add up: time to order (30 min × €25/hour), administration (€5), receiving delivery (15 min × €25/hour), storing (10 min × €25/hour). Usually €15-30 per order.
Determine storage costs per unit per year
Calculate 20-30% of the purchase price for capital costs, storage space, insurance and energy. For a €10 product = €2-3 storage costs per year.
Apply the EOQ formula
EOQ = √(2 × Annual consumption × Ordering costs) / Storage costs per unit. This gives you the optimal order quantity that minimizes costs.
Check against practical limitations
Check if the result fits with shelf life, storage space and cash flow. For fresh products: use EOQ as a guideline, but order more frequently in smaller quantities.
✨ Pro tip
Start with EOQ for your 5 most expensive ingredients. If you save 20% there, that saves more than perfect calculations for all small purchases.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
Should I use EOQ for all products?
No, focus on your top 20 ingredients that make up 80% of your purchasing value. For small purchases, the calculation costs more time than it saves.
What if my supplier has minimum order quantities?
Compare the supplier minimum with your EOQ. If the minimum is much higher, find another supplier or accept higher storage costs for better purchase prices.
How often should I recalculate my EOQ?
Recalculate EOQ when there are major changes: new supplier, different prices, seasonal change or restaurant growth. Check at least 2 times per year.
Does EOQ work for seasonal products?
Limited. For seasonal products you calculate EOQ per season based on consumption in that period. Asparagus in May has a different EOQ than in August (if you buy it at all).
What if I have limited storage space?
Then your storage costs are higher (scarcity). This results in lower EOQ = order more frequently, smaller quantities. Sometimes investing in extra cooling is more profitable than ordering frequently.
Can I use EOQ for beverages?
Yes, EOQ works excellently for beverages because they have a long shelf life. Wine, beer and soft drinks have low storage costs and can be ordered in large quantities.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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