Open to Buy: Definition, Formula, and Plan Guide (2026)

Open-to-buy (OTB) planning calculates how much a retailer can spend on new inventory during a set period. The calculation accounts for planned sales, planned markdowns, current stock, and outstanding purchase orders. It aligns purchasing budgets with sales forecasts and available cash.

US retailers held $831.3 billion in inventory in June 2026, up 3% from a year earlier, according to the US Census Bureau. Excess stock can tie up cash in slow-moving products and markdowns. Too little stock can lead to missed sales.

This guide explains how open-to-buy planning fits into inventory management and how to calculate an OTB budget.

What is open to buy?

Open to buy (OTB) is the value of inventory a retailer can purchase during a set period and still meet their sales and stock targets. Retailers track OTB in dollars and revise the budget as actual results come in.

OTB is a merchandise budget. Existing purchase orders can exhaust that budget even when the retailer has cash available.

When to use open-to-buy planning

In retail, OTB planning sets a purchasing budget for a defined period. Retail buyers update their budget when demand changes. In RELEX Solutions’ 2025 report, 52% of retailers cited consumer demand volatility as their most significant challenge.

Use OTB when your retail business carries many stock keeping units (SKUs) or operates multiple stores. One plan can cover both ecommerce and physical retail.

OTB planning is most relevant when you need to:

• Plan across sales channels. Set one budget for online and in-store inventory. Adjust purchases when one channel sells faster than others.
• Prepare for seasonal demand. Estimate seasonal inventory needs before supplier order deadlines. Revise OTB when the sales forecast changes.
• Manage inventory across locations. Account for stock transfers and incoming purchase orders before placing new orders.

Set the planning cadence according to how quickly sales change. According to Shopify’s November 2025 store owner survey, 69% of established businesses review their finances at least weekly:

• Monthly planning. Use it for stable assortments and predictable sales patterns. Review the plan before placing the next month’s orders.
• Weekly planning. Use it when demand changes quickly. A major promotion is one example.

Regular reviews keep the budget aligned with actual sales and inventory. 

3 OTB planning methodologies

Retailers calculate OTB using one of three measurement bases. All three answer the same question: How much inventory can the business purchase within their OTB plan?

• Retail OTB. Values inventory purchases at their planned selling price. Merchandising teams use it to manage category budgets and markdowns.
• Cost OTB. Values inventory purchases at merchandise cost. Buying and finance teams use it to manage cash commitments and working capital.
• Unit OTB. Measures inventory purchases by unit count. Retailers use it for replenishment when prices are stable.

Retailers use more than one method. For example, a buyer may set a category budget at retail value and convert it to cost before issuing purchase orders. Keep the inventory valuation basis consistent within each calculation.

The open-to-buy formula

The OTB formula looks like this:

Open to buy (OTB) = (planned sales + planned markdowns + planned end-of-month inventory) - planned beginning-of-month inventory

Here are definitions of the terms used in the OTB formula:

• Planned beginning-of-month inventory. How much retail inventory (in dollars) you expect to have at the beginning of the month.
• Planned sales. How much retail sales (in dollars) you forecast during a given month.
• Planned markdowns. A projection of product markdowns (in dollars).
• Planned open-to-buy dollars. The dollar amount that you have available to buy more inventory during the month.
• Planned end-of-month inventory. A forecast of balance inventory (in dollars) at the end of the month. End-of-month inventory carries over to become the beginning inventory for the next month.

The formula is for general informational purposes only and does not constitute financial advice.

It shows how much inventory (in retail dollars) you have available to purchase for the month while still meeting your planned ending inventory target.

The open-to-buy formula will help forecast your OTB plan. The values in your open-to-buy are projections, so they may not be perfectly accurate. A sensible way to check your numbers is to see whether your actual month-end inventory is within 5% of your prediction.

To see your ending inventory, view the month-end inventory snapshot report in Shopify admin.

How to calculate your open-to-buy at cost

Initial markup (IMU) is the calculation used to determine the retail price of an item in your store. For example, if you have a wallet that costs you $15 to make or purchase at wholesale, the IMU is the measure of how much you mark up the wallet when you sell it to the customer.

If your IMU is 75%, you would use this calculation to determine your retail price: cost or wholesale price / (1 − IMU %) = retail price.

1. Convert the markup percent into a decimal: 75% = 0.75
2. Subtract it from 1 (to get the inverse): 1 − .75 = 0.25
3. Divide the wholesale price by 0.25.
4. The answer is your retail price.

For example: $15 (cost or wholesale price) / (1 − 0.75) = $60 (retail price)

Your initial retail price needs to cover inventory costs and selling expenses. Include a portion of store overhead when setting the price.

To figure out your OTB at cost, multiply the OTB value by the initial markup. If your initial markup is 75%, for example, your open-to-buy at cost is $10,350 x 0.25 = $2,587.50.

The benefits of open-to-buy planning

OTB planning sets purchasing limits for a defined period. Retailers can update those limits when sales or inventory levels change.

Optimal stock levels

OTB planning calculates purchasing capacity from planned sales and target ending inventory. It can limit two costly inventory positions:

• Overstock. Cash stays invested in slow-selling products. Storage costs and markdown risk also rise.
• Understock. Products sell out before replenishment arrives, causing missed sales.

In a 2025 report, IHL Group estimated that out-of-stocks and overstocks cost global retailers $1.73 trillion annually, equaling 6.5% of global retail sales. An OTB budget keeps new purchase orders within the inventory plan.

Adjust purchasing budgets

Retail brands can recalculate OTB monthly or weekly. When sales change, buyers can increase or reduce upcoming orders.

For example, a retailer planning a pop-up shop next month can add the event to their inventory plan before placing orders. The revised OTB budget sets the stock purchasing limit for the event.

Respond to sales trends

OTB doesn’t identify demand trends on its own. Buyers review sales data and update the forecast, then recalculate OTB.

Before Black Friday and Cyber Monday, for example, a buyer can increase planned sales and recalculate the budget. Early revisions can reduce stockouts during the event.

Prevent overspending

OTB sets a purchasing limit for the period. Buyers compare that limit with existing purchase orders before approving new stock.

Category-level budgets also direct retail merchandising decisions. If a category sells below plan, the buyer can reduce future orders.

The limitations of open-to-buy

OTB has two main limits:

It’s not ideal for staple items

Staple items are products customers expect to find year-round, such as milk in a grocery store. These items need continuous replenishment.

Use a reorder point to trigger item-level orders. OTB can still cap the category budget.

Reorder points also rely on accurate lead times. In Netstock’s 2025 Benchmark Report, 68% of small and midsize businesses named lead-time variability as their top supplier challenge. Lead-time variability means shipments arrive earlier or later than planned.

It needs to be supplemented with other metrics

OTB uses a small set of planned figures. Errors in those figures carry into the final budget. Review these measures with the plan:

• Order cycle time. Compare supplier lead time with the OTB review period. Long lead times can make a monthly plan too short.
• Inventory carrying costs. Include storage and financing costs when assessing planned ending inventory.
• Demand forecast accuracy. Compare each forecast with actual sales.
• Inventory shrinkage. Correct stock records for shrinkage before calculating OTB.

Shopify’s analytics field references define the data available for custom reports. For example, the “inventory adjustment change” field shows how many units were added or removed. The “inventory change reason” field records why the stock changed. 

Reviewing these fields can expose discrepancies before they distort an OTB calculation. An app like Inventory Planner by Sage uses synced inventory data to forecast demand and automate replenishment across locations.

Shoe customization and care brand, Angelus Direct, eliminated manual inventory counts and extended production forecasting to six months after centralizing its data in Shopify. Across the broader migration, worldwide sales increased tenfold within five years.

How to create your own open-to-buy plan

Use these three steps to calculate an OTB budget and keep it current.

1. Calculate inventory turnover

Inventory turnover measures how often stock is sold and replaced during a given period. Higher turnover usually calls for more frequent replenishment.

Calculate inventory turnover using cost of goods sold (COGS) and average inventory:

Average inventory = (beginning inventory + ending inventory) / 2

Inventory turnover = COGS / average inventory

For example, $50,000 in COGS divided by $25,000 in average inventory equals two turns.

Netstock’s 2025 Benchmark Report found that stock turns averaged 5.3 across their global small and midsize customer base. Set your targets by category because sales velocity differs. Use those targets to plan stock levels.

2. Build the financial plan

Reconcile current inventory with open purchase orders before calculating OTB. Then build a rolling six-month spreadsheet with one column per week or month.

Add these rows:

• Planned beginning inventory
• Planned sales
• Planned markdowns
• Planned ending inventory
• Inventory on order
• Available OTB

Use the same valuation basis throughout the spreadsheet. Avoid mixing retail value, cost, and units in one calculation.

The seasonally adjusted US retail inventories-to-sales ratio was 1.25 in June 2026. That equals 1.25 months of inventory at the month’s sales pace. Use this data as market context instead of a store target.

A spreadsheet is adequate for a small assortment. Move the model into planning software when manual updates can no longer keep inventory and purchase order data up to date. The inputs stay the same. Software automates data refreshes and plan versions.

3. Review plan variances

After each period, compare actual sales with the forecast. Check ending inventory against the target. Record the reason for each material variance before revising future periods.

Example open-to-buy plan

The table below shows a six-month OTB plan for a fashion retailer. Available OTB rises from $10,350 in October to $17,200 in February as beginning inventory declines.

The February calculation is:

($14,000 + $200 + $12,000) − $9,000 = $17,200

Beginning inventory carries forward from the prior month’s ending inventory. Use last year’s POS and ecommerce sales as the baseline. Add planned promotions and new launches. Replace projections with actual results at month-end.

Open-to-buy plan template

Copy this layout into a spreadsheet and replace each month with your planning period.

Calculate each month using this open-to-buy formula:

OTB = (planned sales + planned markdowns + planned ending inventory) − planned beginning inventory