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

Open-to-buy (OTB) planning helps you determine your budget for new products after accounting for current stock and existing orders. This ensures your spending matches your sales forecasts.

A solid OTB plan turns inventory management into a competitive advantage. Instead of tying up cash in stagnant products, you gain the financial flexibility to jump on new trends and reinvest in high-opportunity items. 

This guide will show you how to build an OTB plan that keeps your cash flow healthy and ensures you always have the right stock to capture every sale.

What is open to buy?

Open to buy (OTB) is a retail inventory budgeting strategy that calculates how much money or inventory a retailer has available to purchase new products after accounting for stock on hand and outstanding orders. OTB typically is measured in dollars and can be applied by category, department, or across an entire business.

When to use open-to-buy planning

OTB planning is important for retailers at any stage, but even more so as your retail business gets more complex. 

If you’re managing a huge range of stock keeping units (SKUs), running multiple stores, or balancing online and physical sales, OTB is your go-to strategy. It helps you look at your past sales, current stock, and upcoming promotions to figure out exactly where your money will do the most good.

Think about using OTB planning when you want to:

• Unify your channels. Selling online and in-store? OTB planning unifies your budget so you aren’t overstocked in one place while sold out in another.
• Stay ahead of trends. Plan early for seasonal shifts like holidays or summer. This keeps your cash liquid so you can jump on strategic opportunities, like off-season supplier discounts.
• Optimize multiple locations. Tailor your budget to the specific sales trends and delivery times of different regions. Factoring in stock transfers and incoming orders ensures your math stays accurate and your shelves stay full.

The time frame for OTB planning depends on your business needs and strategy.

• Monthly planning. The standard for most retailers. It’s perfect for seeing the big picture and keeping your stock aligned with monthly sales goals and financial reports.
• Weekly planning. Best for fast-moving businesses, like those dealing with viral trends or big promotions. Updating your OTB plan weekly gives you tighter cash flow control and lets you react to real-time sales rather than month-old forecasts.

As your business grows, making OTB a regular part of your routine helps you make smarter calls on where to spend and where to send your stock. Now that you know when to use OTB, let’s get into how you use the formula and all the key terms you’ll need to know.

3 OTB planning methodologies

Retailers generally use one of three OTB planning methods to answer the same question: “How much can I afford to buy?”

• Retail (revenue-based). Uses projected sales and target stock at full retail price. It’s perfect for fashion or seasonal brands that need to align buying with revenue goals and manage markdowns.
• Cost-based. Focuses on the actual cash you’re paying for stock. This is critical for growing brands that need to prioritize cash flow and keep a close eye on working capital.
• Unit-based. Prioritizes quantities over dollars. It’s best for high-volume stores with stable pricing (like beauty or grocery) that need to get replenishment right across multiple locations.

The best method for you usually depends on how complex your operations are:

• If your priorities are merchandising and margins, go with retail OTB. It keeps your buying perfectly in sync with your sales goals.
• If your main goal is staying on top of cash flow, choose cost-based OTB. It gives you the best financial guardrails.
• If you deal with high volumes or multiple locations, unit-based OTB will help you get your replenishment and allocation right.

Many established retailers mix and match strategies. For example, using retail OTB to plan their overall strategy while using cost-based OTB to manage the actual checks they write. As your business grows, don’t be afraid to let your OTB process evolve along with your sales channels and SKU count.

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

This formula 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 you create forecasts for 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.

💡 Pro tip: Ready to leave your spreadsheets behind? To see your ending inventory, view the month-end inventory snapshot report in Shopify admin.

Here are definitions of 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.

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 to purchase at wholesale, then the IMU is the measurement 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)

While your initial retail price must cover the cost of the product and the selling expenses that are associated with the item, remember to factor less obvious costs into your retail price. Consider covering a portion of your business’s day-to-day overhead, such as the cost of your website each month and marketing. This will ensure you’re left with some profit. 

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

There are many benefits to using open-to-buy planning, including:

Optimal stock levels

Managing inventory is one of the biggest challenges for retailers of all sizes. There’s a sweet spot between:

1. Having too much inventory. With too much inventory, you lose money by keeping items in expensive storage or distribution centers—or worse, they become unsellable if they’re kept in storage too long. A food retailer that has unsold meat sitting in storage for two months is a recipe for disaster.
2. Having too little inventory. “Sorry, this product is out of stock” is a phrase you never want your team to have to say to customers. But inventory shortages happen, with complete stockouts costing retailers $1 trillion every year.

OTB planning helps retailers find the middle ground between bloated and sparse inventory levels. You’ll know exactly how much inventory you have and how much you’ll need for the upcoming period, giving you a clear budget to spend on purchase orders for new products.

More flexible inventory

Unlike quarterly or yearly inventory replenishment, most retailers do their OTB planning on a monthly or weekly basis. Your budget will change accordingly, giving you the flexibility to order more (or less) inventory on any given week or month.

Let’s put that into practice and say you’re planning to do a last-minute pop-up shop in your local area next month. You’ve already done your quarterly inventory planning without factoring in the extra stock you hope to sell at the event. By doing an OTB plan the month prior, you know exactly how much inventory you need to order—both in terms of SKU quantities and the dollar amount you have to spend.

Identify trends

When managing inventory, it’s safe to assume that there’s always more than meets the eye. What seems like an obvious trend isn’t always as accurate as you might think. 

You can see this in action with fashion retail stores. You might expect t-shirt sales to spike just before summer, but OTB planning research shows that trend starts to accelerate earlier than you’d expected. In fact, t-shirt sales tend to increase starting in April. 

Going without an OTB plan altogether means you’d get to April and not have enough inventory to cater to the shoppers buying t-shirts earlier than expected. Not only that, but creating an OTB plan factors in sales and promotions. 

According to the 2026 State of Retail Communication and Execution report, 43% of retail leaders say that when HQ and store teams aren’t on the same page, sales slip because initiatives get delayed, inventory falls short, and customer experiences are ruined. 

OTB planning takes all of those factors into account. You’ll see upcoming flash sales and year-round seasonal patterns, like Black Friday and Cyber Monday, when planning your inventory budget. The result? No stockouts during peak sales seasons. 

Prevent overspending

OTB not only helps you better plan inventory purchases, but it’s also a financial budget that can help you tighten your belt. 

For example, you might have a total of $100,000 tied up in your current inventory. Creating an OTB plan can help you carefully manage retail merchandise across your business for the year. 

As a result, this kind of planning can help you find “slack” in your inventory investment budget. Even a 10% cost-savings in this example means you’d have an extra $10,000 to invest elsewhere.

The limitations of open-to-buy

Likewise, there are limitations to using the open-to-buy planning method, including:

It’s not ideal for staple items

Staple items are the essentials your customers always expect to find, like bread and milk at a grocery store or signature plush throws at a retail home goods store. 

Since these items have steady demand throughout the year, OTB planning often isn’t the right fit. It can cause you to miss out on bulk discounts or struggle with lead-time volatility.

In 2025 and 2026, retailers continue to report fluctuating supplier lead times and demand variability, particularly for high-velocity SKUs. For staple products with predictable, steady demand, replenishment planning and setting a reorder point is the better approach.

By setting budgets further in advance and using automated systems, you can prioritize consistent in-stock rates and vendor efficiency, ensuring your customers never leave empty-handed.

It needs to be supplemented with other metrics

An OTB retail plan takes only six metrics into consideration. However, inventory management and financial planning is like a machine with several cogs. You might run into problems if you’re not looking at the bigger picture.

Without real-time syncing, you lose track of stock counts, returns, or costs. This leads to decisions based on outdated numbers, resulting in overbuying, stockouts, and financial surprises. Deloitte’s 2026 research notes that most retailers are now investing in integrated platforms specifically to fix these visibility gaps.

Supplement your OTB plan with other metrics that could impact those you’re using in the OTB formula. That includes:

• Order cycle time. Also known as lead time, this shows how long it takes for a product to be acquired, manufactured, shipped, and sold. OTB planning isn’t the best budgeting method for inventory with longer order cycles because of its short-term forecasts.
• Inventory carrying costs. How much does it cost to keep your inventory in storage? If your planned end-of-month inventory is costing $3,000 to store but is only worth $3,500 in sales, consider cutting down your OTB budget.
• Demand forecast accuracy. You have sales data to go off when predicting future sales. But unpredictable and unavoidable things happen (take COVID as the most extreme example). When OTB planning, look back over previous predictions to see how accurate your forecasts were. 
• Inventory shrinkage. Planned and predicted inventory are totally different from your actual inventory count. Stock can go missing for many reasons, including employee theft, return fraud, or administrative errors. OTB planning doesn’t take shrinkage into consideration, meaning your predictions could be inaccurate. 

How to create your own open-to-buy plan

Ready to create an OTB plan for upcoming stock replenishment? Here’s how to set an OTB budget that works for your retail store. 

1. Know your inventory turnover

Part of creating an OTB budget involves planning inventory turnover—a calculation that measures how fast you sell through inventory and need to replace it. The quicker a retailer turns its inventory, the more it will need to buy or make in a year.

Calculate your inventory turnover using the following formula: 

Turnover rate = sales / inventory

For example, if you sold $50,000 worth of product and had $25,000 in inventory, your inventory turnover would be $50,000 / $25,000 = 2. You turned over your inventory two times during the given time period.

Most retailers don’t set turns at the same level across every product or category, since products often sell at different rates. With the right open-to-buy plan, you can manage your product categories and stock levels by planning inventory turns for each.

2. Run the financials

OTB planning doesn’t have to be overly complex. Many small to medium-sized retailers plan their OTB month-to-month. Businesses with high spikes in seasonal sales should try creating a weekly OTB plan.

An added benefit of OTB planning is that it often exposes inventory tracking gaps, because it forces you to compare what your systems say you have (on-hand and incoming) with what’s available to sell. 

If sales, returns, purchase orders, or inventory adjustments aren’t being tracked consistently, your OTB dollars can quickly get out of sync. The good news is fixing those gaps makes your OTB plan more reliable.

You can start by creating a six-month open-to-buy plan in a spreadsheet. For each product you’re forecasting inventory budgets for, add the following rows for each month or week:

• Planned sales
• Planned markdowns
• Planned end of month inventory
• Planned beginning of month inventory
• OTB dollars

As you grow, you can keep the same OTB foundation but evolve toward more advanced planning, adding better forecasting, longer lead-time visibility, and scenario planning as your business matures.

3. Sense-check your predictions

Over time, you’ll learn and adapt your OTB plan each season or year based on your unique business’s sales and markdown history. Regardless of which method you chose, make sure you carefully review each number and ask yourself if it’s realistic before you put your retail OTB plan into operation.

Example open-to-buy plan

Unsure what an OTB plan looks like? Here’s an example for a fashion retailer during the holidays. Notice how OTB budgets climb in December and January to match peak sales, then peak again in February to restock depleted shelves. 

To build your own, use your POS and ecommerce reports from last year as a baseline. Layer in your planned promotions, then adjust for expected growth or new launches. As you scale, inventory planning apps can automate these forecasts, helping you move from reactive holiday buying to predictive seasonal planning.

Using open-to-buy planning for your retail store

Each year, countless retailers have to close up shop due to mismanaged inventory. 

Use an OTB plan to stop going under or over budget. Know your inventory turnover, run the formula, and sense-check any predictions by comparing them against previous sales data. It’s a great starting point to creating accurate retail merchandise budgets.