Open-to-Buy Inventory Planning: Formula and Example

Open-to-buy (OTB) is a retail inventory budgeting method that tells you how much merchandise you can commit to buying during a planning period while still hitting your sales and ending-inventory targets. It is usually managed in dollars, but some retailers also plan OTB at cost or in units.

The most important thing to understand is that OTB is a buying budget, not a SKU-level reorder trigger. It helps answer “how much can we afford to commit to inventory?” while reorder points and replenishment rules answer “which item should we order, and when?”

Open-to-buy formula

A common retail OTB formula is:

Open to Buy = Planned Sales + Planned Markdowns + Planned Ending Inventory − Planned Beginning Inventory

This version expresses the amount of inventory value you need to add during the period to support the sales plan and still finish with the desired stock level.

Important: open purchase orders are purchase commitments, not the same thing as the base OTB calculation. After calculating OTB, compare it with merchandise already ordered so you do not commit the same budget twice.

A practical purchasing view is:

Remaining OTB = Calculated OTB − Purchase Commitments Already Placed

If your business uses a different internal convention, document it clearly. The biggest mistake is mixing formulas, cost values, retail values, and on-order commitments without knowing which number represents what.

Open-to-buy example

Assume a retailer is planning November at retail value:

• Planned beginning inventory: $28,000
• Planned sales: $50,000
• Planned markdowns: $5,000
• Planned ending inventory: $30,000

The base calculation is:

OTB = $50,000 + $5,000 + $30,000 − $28,000 = $57,000

The retailer needs $57,000 of inventory at retail value to support the plan.

Now assume $12,000 of that requirement is already covered by purchase orders that have been placed but not yet received:

Remaining OTB = $57,000 − $12,000 = $45,000

That means the buyer has $45,000 of additional purchasing capacity under the current plan, assuming the existing orders arrive as expected.

What each OTB input means

Planned beginning inventory

The value of inventory you expect to have at the start of the planning period. In a rolling monthly plan, the prior month's ending inventory normally becomes the next month's beginning inventory.

Planned sales

The sales value you expect during the period. Historical sales are useful, but the forecast should also account for promotions, seasonality, store openings, closures, events, product launches, and known demand shifts.

Planned markdowns

The inventory value expected to be reduced through discounts or markdown activity. Markdown planning matters because weak sell-through often forces the business to reduce price before stock leaves the business.

Planned ending inventory

The amount of stock you want to carry into the next period. This target should reflect demand coverage, lead time, seasonality, service goals, and working-capital constraints.

Retail OTB vs cost OTB vs unit OTB

OTB can be planned using different measurement bases. The right method depends on what decision you are trying to control.

Method	Measures	Best for
Retail OTB	Inventory at planned selling value	Merchandise and category planning
Cost OTB	Inventory at purchase cost	Cash and purchasing commitments
Unit OTB	Number of units	Stable-price assortments and allocation

Do not combine retail-value beginning inventory with cost-value purchases in the same calculation. Pick one basis and keep every input consistent.

How to build an open-to-buy plan

1. Choose the planning period. Monthly is common for stable assortments. Faster-moving or seasonal categories may need weekly review.
2. Set the beginning inventory. Start with a trustworthy inventory value, not an outdated spreadsheet estimate.
3. Forecast sales. Use historical demand plus known changes such as promotions, seasonality, new locations, and events.
4. Plan markdowns. Include expected clearance and promotional reductions.
5. Set the desired ending inventory. Decide how much stock you want left after planned sales.
6. Calculate OTB. Use one consistent valuation basis.
7. Subtract existing purchasing commitments. Review open purchase orders and other confirmed buys.
8. Review actual vs planned results. Update future periods when sales, inventory, markdowns, or deliveries differ from plan.

How often should you update open-to-buy?

OTB is most useful as a rolling control, not a spreadsheet you create once and ignore.

A stable assortment may only need a formal monthly review. Seasonal, promotional, or fast-moving categories can benefit from weekly updates. Recalculate whenever actual sales, supplier deliveries, markdowns, or inventory positions materially diverge from the plan.

For multi-location businesses, review the company-level budget and the location-level demand pattern separately. One location may be overstocked while another is selling through quickly.

What open-to-buy helps prevent

• Ordering more inventory without accounting for what is already on order
• Tying too much cash up in slow-moving stock
• Running out of buying capacity before a seasonal peak
• Keeping purchasing plans unchanged after sales miss forecast
• Overbuying categories with weak sell-through
• Using a companywide budget without checking location-level demand

Open-to-buy is not the same as replenishment

OTB controls the amount of purchasing capacity available. It does not decide exactly which SKU deserves the next order.

SKU-level replenishment needs a separate set of inputs:

• Current on-hand inventory
• Committed demand
• Open purchase orders
• Demand rate
• Supplier lead time
• Safety stock
• Minimum order quantities
• Case-pack constraints

Use the inventory replenishment guide, reorder point formula, and reorder quantity guide for that level of planning.

Use OTB with sell-through and weeks of supply

OTB becomes more useful when the buyer can see whether inventory is actually moving.

Sell-through rate shows how much available merchandise is selling during a period. Weeks of supply translates inventory into expected demand coverage. Together, these metrics can reveal when too much of the buying budget is trapped in slow-moving categories.

For a broader performance view, track inventory turnover and inventory aging as well.

Open-to-buy for multiple locations

A centralized OTB budget should not automatically become an equal allocation across stores. A product can sell quickly at one location and barely move at another.

Use location-level sales, stock, and weeks-of-supply data before deciding where new inventory should go. In some cases, a transfer from an overstocked location can reduce the amount that needs to be purchased at all.

See multi-location inventory management and the inventory transfer guide.

Common open-to-buy mistakes

Mixing retail value and cost

If sales and ending inventory are measured at retail while beginning inventory or purchases are measured at cost, the result is not meaningful.

Double-counting open purchase orders

Know whether your internal formula already includes commitments before subtracting them. The safest approach is to define the base OTB calculation separately from the remaining amount available after confirmed orders.

Using last year's sales without adjustment

Historical sales are a baseline, not a forecast. Promotions, price changes, weather, local events, new stores, assortment changes, and supply constraints can all change demand.

Keeping the same ending-inventory target all year

Retailers often need more stock coverage before a peak period and less after it. Ending-stock targets should change with the operating plan.

Using OTB as a SKU reorder rule

A healthy category budget does not mean every item in the category deserves another order. Use SKU-level demand and replenishment logic for the actual purchase decision.

How Stash fits into open-to-buy planning

Stash inventory management software gives growing physical businesses a central view of stock, sales context, suppliers, purchase orders, forecasting, and multiple locations. Those inputs help buyers understand what is already owned, what is on order, where inventory sits, and how quickly it is moving before approving more purchases.

OTB can remain a financial planning layer while Stash supports the operational layer underneath it: purchase orders, receiving, inventory visibility, forecasting, supplier management, and location-level stock.

Frequently asked questions

What is open-to-buy in retail?

Open-to-buy is a retail inventory budgeting method that estimates how much merchandise can be purchased during a period while still meeting planned sales and ending-inventory targets.

What is the open-to-buy formula?

A common formula is planned sales + planned markdowns + planned ending inventory − planned beginning inventory. Existing purchase commitments should then be reconciled against that budget so the business knows how much remains available to commit.

Can open-to-buy be negative?

Yes. A negative result means the planned inventory position already exceeds the amount required by the current sales and ending-stock plan. Review incoming orders, markdowns, transfers, and future buying before committing more inventory.

Is open-to-buy the same as a purchase budget?

It functions as a dynamic merchandise purchasing budget, but it is tied directly to sales and inventory plans rather than being a fixed spending limit.

Does OTB tell me how much of each SKU to order?

No. OTB sets the purchasing capacity at a financial or category level. Reorder quantity, reorder point, demand forecasting, lead time, and safety stock determine SKU-level replenishment.

Next steps

Build a rolling OTB plan using one consistent valuation basis, reconcile it against open purchase commitments, then review actual sales and ending inventory after each planning period.

For the operational side, continue with how much inventory to reorder and inventory replenishment methods. You can also explore Stash or review Stash pricing.