Economic Order Quantity Amazon FBA Definition
Economic order quantity Amazon FBA answers a different question than reorder point: not WHEN to order, but HOW MUCH. The economic order quantity formula balances two opposing costs. Order too small and you pay PO and freight overhead too often (and miss container-load freight breaks). Order too large and you tie up cash, eat storage fees, and risk aged-inventory surcharges if the SKU slows.
The classic Wilson EOQ formula assumes constant demand, instant replenishment, and a single fixed-cost-per-order. Real FBA operations break all three assumptions, but the economic order quantity Amazon FBA calculation is still the right starting point. From there, you adjust for: supplier MOQ (which often forces orders larger than EOQ), freight breakpoints (full container vs. LCL), and storage cost differentials between FBA standard, FBA oversize, AWD, and 3PL.
If your supplier’s MOQ exceeds EOQ, you’re stuck ordering MOQ. That doesn’t mean the economic order quantity is useless. It tells you how much over-buying you’re absorbing per cycle, which is real holding cost you should price into the SKU’s contribution margin.
Formula
Example: a wholesale SKU at 9,500 units/year
A wholesale seller running 9,500 units/year of a $34 ASP product. Cost of goods $11.20/unit landed. Per-order fixed cost (freight setup, customs broker, prep) $850. Annual holding cost: 18% cost of capital + $0.96/unit/year FBA storage + 2% shrinkage = $11.20 × 0.20 + $0.96 = $3.20/unit/year.
EOQ = √((2 × 9,500 × 850) / 3.20)
= √(16,150,000 / 3.20)
= √5,046,875
≈ 2,247 units per orderThat works out to roughly 9,500 / 2,247 ≈ 4.2 orders per year, or one PO every ~87 days.
But the supplier’s MOQ is 3,000 units. The seller orders 3,000 instead. The “over-EOQ” cost they absorb:
Over-buy = 3,000 − 2,247 = 753 extra units per cycle With 9,500/3,000 ≈ 3.17 cycles per year: Annual over-buy holding cost = 753/2 × $3.20 ≈ $1,205/year
That’s the cash cost of being MOQ-bound on this one SKU. If the seller can negotiate MOQ down to 2,500, they save ~$405/year on this SKU. Across 30 SKUs, the cumulative cost of MOQ creep is meaningful.
Why EOQ matters for FBA sellers
FBA storage rates roughly double from Jan-Sep to Q4 with surcharges, and they triple on aged inventory. EOQ calculated with annual-average storage understates the cost for SKUs where any portion of inventory ages into Q4. For seasonal SKUs, calculate EOQ using the EFFECTIVE storage cost over the actual carry window (often 5-7 months, not 12).
A second wrinkle: AWD vs. FBA. Splitting EOQ between AWD and FBA changes H. If the SKU’s storage cost in AWD is $0.48 vs. FBA’s $0.83, the effective holding cost can drop 30-40%, raising the optimal order size meaningfully. Operators with reliable AWD pipelines can run larger order cycles without paying the FBA carrying penalty.
Common mistakes
- Using purchase price as cost of capital. H should reflect actual cost of capital (typically 12-25% for SMB Amazon sellers using credit lines or revenue-based financing), not just inventory value.
- Ignoring freight breakpoints. EOQ might say 2,247 units but a 40-foot container fits 2,800 of this SKU at $0.40/unit ocean vs. LCL at $1.20/unit. The breakpoint changes the math.
- Treating EOQ as a hard answer. It’s a starting point. Round to the nearest case pack, freight breakpoint, or MOQ, whichever is binding.