Open to buy calculator and six-month planner

The example numbers are illustrative. Each month's ending inventory becomes the next month's beginning inventory. On a phone, swipe the table sideways to see all six months.

What is open to buy?

Open to buy (OTB) is the amount of inventory you can still receive in a period and stay on plan. It is that period's planned purchases minus what you have already ordered for it.

The open to buy formula

• Planned purchases = planned sales + planned markdowns + planned end-of-month inventory - beginning-of-month inventory
• Open to buy = planned purchases - inventory already on order for that month
• Open to buy at cost = open to buy at retail x (1 - initial markup %)

Worked example, using the planner's first month: planned sales $120,000, markdowns $8,000 and ending inventory $300,000, minus $280,000 of beginning inventory, gives $148,000 of planned purchases. With $90,000 already on order, $58,000 is open to buy at retail. At a 55 percent initial markup that is $26,100 at cost.

Each input, in plain terms

• Planned sales: what you expect to sell that month, at the same basis as everything else
• Planned markdowns and other reductions: price cuts, promotions, employee discounts and shrink, all of which reduce inventory value without a sale at full price
• Planned end-of-month inventory: what you want on hand going into the next month, set from your sales plan and how many weeks of cover you need
• Beginning-of-month inventory: what you will have on hand at the start, which is last month's ending inventory
• On order: purchase orders already placed that will arrive in that month

Open to buy for brands, not just retailers

OTB is usually taught as a retail buyer's tool, but brands need it too. Your own stores and site carry inventory, and every production buy is an open-to-buy decision. Brands usually plan in cost dollars or units rather than retail, which is why the planner lets you switch.

The month that matters is the month goods arrive, not the month you place the order. A purchase order placed in March for goods landing in June uses June's open to buy. Use the sourcing transit times calculator to work out when each order will actually land, then budget it in that month.

Stock-to-sales ratio

The planner shows a stock-to-sales ratio for each month: beginning inventory divided by that month's sales. A ratio of 2.3 means you start the month holding 2.3 months of that month's sales. It is the quickest way to sanity-check your ending inventory targets. A ratio that jumps in a slow month usually means receipts are landing too early.

Common open-to-buy mistakes

• Mixing retail and cost numbers in the same plan
• Budgeting orders in the month they were placed instead of the month they arrive
• Leaving out markdowns, promotions and shrink, which overstates the inventory you will have
• Planning one total for the whole business instead of by category, where over-buying hides behind other categories
• Never replacing the plan with actuals, so the plan drifts further from reality each month
• Ignoring late deliveries, which push receipts into a month that was already full

Frequently asked questions

What is the open to buy formula?

Planned sales plus planned markdowns plus planned end-of-month inventory, minus beginning-of-month inventory, gives planned purchases. Subtract what is already on order and the rest is open to buy.

Is open to buy calculated at retail or at cost?

Either works if you stay consistent. Retailers usually plan at retail and convert to cost with their initial markup when they place orders. Brands more often plan at cost or in units.

What does a negative open to buy mean?

You are over-bought for that month: more is arriving than the plan has room for. Move receipts to a later month, cancel what you can, or plan for the markdowns it will take to sell through.

How often should open to buy be updated?

At least monthly, replacing planned figures with actual sales, markdowns and receipts. In season, many teams review it weekly.

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