What it means
A retailer wants enough merchandise for forecast sales without exceeding its stock plan, and open-to-buy shows what it can still commit to receive. It is a planning control, not cash sitting in a separate bank account.
Begin with a sales forecast and target closing inventory, then consider the opening stock and expected markdowns under the chosen retail-value approach to find the receipts needed for the period. Shopify gives a retail-value formula: planned sales plus planned markdowns plus planned ending inventory minus planned beginning inventory, which calculates a planned receipt requirement.
Already committed orders must be accounted for before calling the remainder uncommitted OTB. Toolio describes OTB as planned receipts minus on-order commitments, so if 100 units are needed and 50 are already ordered for that period, the remaining open capacity is 50 units.
A fictional store plans $50,000 of retail-value receipts and has $30,000 committed, so its remaining OTB is $20,000 at retail value. That does not mean it can issue a $20,000 purchase order at cost, because retail value and purchase cost are different bases.
Apply an agreed margin or markup calculation when converting, and be explicit about which basis every input uses, or the result can be badly wrong. Planned sales may change during a season: if a product sells faster than expected, the store may raise its receipt plan, while slow sales mean more open buying could deepen an inventory problem rather than solve it.
Update OTB with actual sales, stock counts and order changes, since a cancelled order frees planned capacity only if the receipt need still exists and a delayed order may shift capacity to another period. A department-level plan can hide an assortment mismatch, so track OTB by relevant category or item group as well as total store level, because excess winter coats do not fill demand for shoes.
Lead time determines when a buyer must place an order to receive goods in the right period, and OTB refers to planned receipts, not necessarily orders signed during the same month. Markdowns reduce the retail value of stock and appear in some retail-value formulas to reconcile planned inventory movement, so do not insert a markdown line into a cost-value model without checking the method.
Returns, shrinkage and transfers may also affect actual inventory, so define how the planning system treats them. OTB can prevent overbuying by making commitments visible, and it can expose a shortage before shelves go empty.
An open-to-buy figure can be negative, which signals that commitments exceed the current need and calls for a review of orders or the plan, not permission to erase existing contractual obligations. Toolio notes that OTB is less suited as the only control for everyday basics, so treat the figure as a ceiling under assumptions, not a target to exhaust, and reconcile buyer spreadsheets with purchase-order systems before approving more receipts.
In practice
Real-world examples
Example 1
A retailer budgets 100 units of receipts for a month, has 50 committed and sees 50 still open. The buyer checks the delivery dates of the committed units before placing any new order. The remaining capacity is treated as a ceiling, not a target.
Example 2
A fashion buyer lowers planned receipts after weak sales leave too much ending stock. The reduced plan shrinks open-to-buy and may even push it negative. The buyer reviews uncommitted orders instead of buying to the old plan.
Example 3
A shop tracks shoes separately from coats rather than relying on one storewide OTB. A surplus in coats cannot be used to buy shoes the customers actually want. Category-level figures show where the open capacity really sits.
Think of it
Open to Buy is like your weekly grocery budget. You check what food is already in your fridge, estimate what you will eat this week, and only spend the remaining cash on new items so nothing goes to waste.
Formula
Calculation
Illustrative retail-value planned receipts = planned sales + planned markdowns + target ending inventory - planned beginning inventory. Remaining OTB = planned receipts - on-order commitments, with all values on the same basis and period.
Worked example. A fictional shop plans October sales of $60,000 at retail, planned markdowns of $5,000, a target ending inventory of $40,000 and a beginning inventory of $45,000. Planned receipts = $60,000 + $5,000 + $40,000 - $45,000 = $60,000. Purchase orders already commit $35,000 at retail value, so remaining OTB = $60,000 - $35,000 = $25,000. If the buyer's cost is 50% of retail, that $25,000 of retail value supports roughly $12,500 of purchases at cost.Case study
Seen in the real world
In this entirely fictional case, Finch Retail plans $50,000 of receipts at retail value for October. Purchase orders already commit $30,000 on that basis, leaving $20,000 open. The buyer checks delivery timing and forecast demand before adding orders. The team does not treat retail-value OTB as the same amount of supplier cost, and it converts the figure using its agreed margin before issuing any purchase order. A weak first week of sales leads the buyer to leave part of the $20,000 unspent.
Watch out
Common mistakes
- Ignoring goods already on order when calculating the remaining capacity.
- Mixing retail-value and cost-value inputs.
- Treating OTB as cash to spend regardless of weak demand.
Questions
People also ask
Is OTB a cash balance?
No. It is capacity in an inventory receipt plan under stated assumptions.
Can it be negative?
Yes. Commitments may exceed the receipts needed under the current plan.
How often should it change?
Update it as sales, stock, forecasts and orders change, at a cadence suited to the business.