Retail open-to-buy planning: formula, example and a process you can keep

Open-to-buy, usually written OTB, is the amount of merchandise you can still commit to receive in a period without exceeding your plan. It is a forward-looking control, expressed in cost dollars or units, and it works at the level you actually buy: department, class or category.

What open-to-buy is not

• It is not your bank balance. Cash availability is a separate constraint, and both must be respected.
• It is not a purchasing ban. A negative OTB means the plan is already committed, not that you may never buy again.
• It is not a store-wide number. Aggregated OTB hides the category that is overbought behind the one that is under-bought.
• It is not a forecast. It is what the forecast permits you to spend.

The formula, with terms defined

Open-to-buy = planned end-of-period inventory + planned sales + planned markdowns − beginning inventory − merchandise already on order for the period

Every term on one basis — normally cost. Definitions:

• Beginning inventory (BOM): stock on hand at the start of the period.
• Planned sales: the sales you expect to make in the period, at cost if you are working the plan at cost.
• Planned markdowns: the reductions you intend to take, which consume inventory value without full sales credit.
• Planned end-of-period inventory (EOM): the stock level you want to finish with, based on the next period's expected demand and your target weeks of supply.
• On order: purchase orders already placed with delivery inside the period. Forgetting this line is the single most common OTB error.

Planned versus actual review

OTB is only useful if it is refreshed against reality. Each period, compare planned sales, markdowns and ending inventory with what actually happened, then recompute the remaining OTB. Two rules keep the plan honest:

• If sales run under plan, OTB shrinks. Buying the original amount will leave you overstocked and will show up later as markdowns.
• If sales run over plan, OTB grows — but confirm the demand is repeatable before committing the increase to a long-lead order.

Seasonal and category use

Plan seasonal categories inside the season, with an intended sell-down to a defined ending position rather than a flat monthly level. Basics and consumables are better planned to a target weeks-of-supply figure so replenishment stays steady. Building the plan by class also lets you see whether growth is being funded by the category that is actually producing gross profit — a question that connects directly to gross margin.

Common mistakes

• Omitting merchandise already on order.
• Mixing cost and retail basis inside one calculation.
• Planning at store level only, so category imbalances net out invisibly.
• Setting a planned EOM level from last year's actual without asking whether last year's ending stock was correct.
• Leaving planned markdowns out of the plan, then treating them as a surprise.
• Building the plan once and never comparing it with actuals.

How OTB connects to turnover, cash and markdowns

OTB is where the other retail measures become a decision. Your target ending inventory implies a turnover rate; the receipts you approve determine how much cash is committed to product for the next several months; and the accuracy of the plan largely determines the markdown rate you will report later. A retailer with a disciplined OTB process rarely has a surprise clearance season, because the excess was prevented at the order stage rather than discounted at the shelf.

A workable monthly and weekly process

Monthly

1. Set planned sales by category for the next three to six months using your own history and known events.
2. Set planned ending inventory from target weeks of supply for the following period.
3. Add planned markdowns, by category and with intended timing.
4. Subtract beginning inventory and on-order to produce OTB by category.
5. Review whether the resulting receipt plan is affordable in cash terms, not only in plan terms.

Weekly

1. Update actual sales, receipts and markdowns.
2. Recompute remaining OTB for the current and next period.
3. Flag any category where remaining OTB is negative and decide explicitly: delay, cancel, or accept.
4. Record each buying decision with the OTB figure it was made against, so the next review can learn from it.

Practical actions

• Start with your two or three largest inventory categories rather than the whole store; the discipline transfers.
• Keep an on-order list that is current to the week — most OTB failures are really order-visibility failures.
• Write down planned markdowns before the season, not after.
• Take the OTB number into vendor conversations so a limit exists before the pitch does.

The StoreTurnAI perspective

Open-to-buy is where analysis becomes money. Reviewing history is only worthwhile if it changes the next purchase order, so we treat buying limits, aging inventory and prioritized actions as one workflow rather than separate reports. The goal is not a perfect plan; it is a plan current enough that every buying decision has a number beside it.

What to do next: build a plan for one category this month and reconcile it weekly. Then read the retail KPI guide and inventory turnover, see the StoreTurnAI feature areas, or review pricing.