“Open to Buy.” It sounds technical—maybe even a little intimidating. But in truth, it’s one of the most powerful tools any retailer can use to run a profitable, efficient business. Whether you’re a multi-store operation or a small boutique, understanding your Open to Buy (OTB) can make all the difference in staying ahead of trends, managing cash flow, and meeting customer demand.
So, What Exactly Is Open to Buy?
Open to Buy is a financial planning tool that helps retailers manage inventory and control how much they spend on new merchandise. Think of it as a budget specifically for your buying decisions. It tells you how much inventory you should buy based on planned sales, inventory levels, and existing orders.
At its core, Open to Buy is about balance. Too much inventory? You risk cash flow issues and markdowns. Too little? You miss sales and disappoint customers. With a smart OTB plan, you’re always buying with intention.
Why Open to Buy Matters More Than Ever
In today’s fast-moving retail landscape—driven by e-commerce, shifting consumer preferences, and supply chain uncertainty—inventory management isn’t just about keeping shelves stocked. It’s about making data-informed decisions that maximize sales and minimize waste.
Using an Open to Buy plan helps you:
- Forecast sales based on real data and trends
- Manage inventory turnover efficiently
- Improve gross margins
- Free up cash flow for other business needs
- React quickly to what’s selling—and what’s not
How Open to Buy Works
It starts with a monthly sales plan, broken down by category, department, or classification. You’ll also set goals for inventory turnover (how often you sell through your inventory) and gross margin (how much profit you make after accounting for product cost).
Then, factor in:
- Minimum stock levels (what you need on hand to maintain visual standards and fulfill demand)
- Vendor lead times (how long it takes for orders to arrive)
- Reorder frequency
💡 Example: If your vendor takes 90 days to ship, you’ll need to plan your inventory to cover 90 days of sales plus your minimum display needs.
Once these factors are in place, your Open to Buy can be calculated either at a high level or drilled down into departments or product classes.
Retail vs. Cost Dollars: Which Should You Use?
There’s ongoing debate over whether to plan your OTB in Retail Dollars or Cost Dollars. Both are valid, but here’s a quick guide:
- Retail Dollars give you a top-line view and require factoring in markdowns and promotional strategies.
- Cost Dollars (used in the example below) focus on what you’re actually spending and are often simpler to manage for cash flow purposes.
Open to Buy Formula (using Cost Dollars):
OTB = Planned COGS + Planned Ending Inventory – Planned Beginning Inventory – On Order
A Simple Example
Let’s say your plan looks like this:
A negative OTB (like March) indicates you’re over-inventoried or over-ordered, and might need to adjust. Positive OTB numbers show how much more you can (or should) spend that month.
Making Open to Buy Work for You
A few best practices for using an Open to Buy tool effectively:
- Stay flexible: Leave room in your OTB to respond to unexpected trends.
- Review regularly: Monthly is the minimum. Weekly reviews are ideal for fast-paced businesses.
- Adjust as you go: Real-time sales data should inform future plans.
- Include gross margin: Know which areas are making you the most profit.
- Reallocate wisely: Move dollars from slow-moving categories to hot sellers.
The Bottom Line
An Open to Buy is not just a spreadsheet—it’s a strategic roadmap. With it, you’ll gain control over your inventory, make smarter buying decisions, and improve both your cash flow and customer satisfaction.
In today’s retail environment, where trends shift quickly and margins can be tight, using an Open to Buy tool isn’t just helpful—it’s essential.
Whether you’re new to the concept or just need a refresher, now is the perfect time to start working with Open to Buy. Your future profits will thank you.
