Open-to-Buy (OTB) Planning
Open-to-Buy (OTB) is a financial budget for retail merchandise purchasing. It defines how much inventory you can buy during a specific period without exceeding your planned stock levels or strangling cash flow.
The OTB Formula
The standard calculation requires planning your sales and markdowns first, to determine how much stock is needed to support those sales.
OTB = Planned Sales + Planned Markdowns + Planned End of Month (EOM) Inventory - Beginning of Month (BOM) Inventory
Worked Example
Assume you are planning for October:
- Planned Sales: $50,000
- Planned Markdowns: $2,000
- Planned EOM Inventory (Nov 1): $100,000
- Actual BOM Inventory (Oct 1): $110,000
Calculation: ($50,000 + $2,000 + $100,000) - $110,000 = $42,000
You are "open to buy" $42,000 worth of inventory at retail value for October. If your average markup is 50%, your spending budget (cost) is $21,000.
Common Mistakes
- Ignoring Markdowns: Markdowns reduce the retail value of your inventory. If you don't account for them, you will under-buy.
- Buying to the Limit Immediately: Always keep 10-20% of your OTB budget open for in-season opportunities or replacing unexpected fast-sellers.
- Using Cost vs Retail confusingly: OTB is usually calculated at Retail value. You must convert it to Cost before writing purchase orders.
Implement It
Stop calculating by hand. Use our OTB calculator to generate your purchasing budget instantly.
OTB Calculator