business calculator

Retail Open-to-Buy (OTB) Planner

Plan monthly inventory purchasing budgets from sales, markdowns, and inventory targets.

Formula Verified by Dr. Marcus Sterling, PhD

Quick actions: Save inputs, view saved runs, print, share, or export results

Saved Runs

Inputs

Planned sales this period$

Planned markdowns & reductions$

Target ending inventory$

Beginning inventory on hand$

Results

Open-to-Buy Budget

$115,000

Total Merchandise Required$163,000

OTB as % of Sales95.83%

Bookmark this OTB calculator

OTB budgets change monthly with sales performance. Save this page to calculate your inventory buying budgets as actual sales results roll in.

Formula

Open-to-buy formula

OTB = Planned Sales + Markdowns + Target Ending Inventory − Beginning Inventory

Total Merchandise Needed = Planned Sales + Markdowns + Ending Inventory Target. OTB % = OTB ÷ Planned Sales × 100.

Step by step

How the calculation works

1Enter planned sales and estimated markdowns for the period.
2Set your target ending inventory and enter beginning inventory on hand.
3The OTB budget is the maximum you can spend on new inventory purchases.

Example

Boutique retailer example

$120K planned sales + $8K markdowns + $35K ending target − $48K beginning inventory = $115K OTB budget.

Related guides

Learn more about this calculation

Guide

Break-Even Analysis: Formula, Example, and Calculator

Calculate break-even units and revenue from fixed costs, selling price, and variable cost, then test how pricing or cost changes affect the result.

Site Guide

Saving and Exporting Calculations: How to Keep and Reuse Your Results

Learn when to save a DTC calculation locally, when to export to Excel or CSV, when to print to PDF, and how to avoid losing the assumptions behind important results.

How to understand and use this calculator

The Fundamentals of Open-to-Buy (OTB) Planning

For retail store managers, boutique owners, and e-commerce merchandise buyers, maintaining control over inventory purchases is critical for liquidity. Open-to-Buy (OTB) is a financial planning tool that calculates the retail dollar amount of inventory a buyer can purchase during a specific month.

The goal of OTB planning is to ensure you have enough stock to meet planned sales targets while preventing overstocking, which ties up cash and leads to costly markdowns. OTB acts as a purchasing budget for the buying team.

To calculate OTB, you must know your planned sales, planned markdowns, and target ending inventory. These represent the total merchandise required. Subtracting beginning inventory from this total yields the OTB budget.

Managing Planned Reductions and Inventory Targets

Planned markdowns represent price reductions, employee discounts, and theft write-offs. These reductions reduce the retail value of stock and must be factored into your inventory requirement calculations.

Target ending inventory is the retail value of stock you want to have on hand at the end of the month to prepare for the following month. Setting realistic ending targets prevents stockouts during seasonal sales transitions.

If a store has slow sales, actual inventory levels will remain high. In this case, the OTB calculation will automatically shrink the purchase budget for the next month, protecting the business from accumulating excess stock.

Optimizing Retail Cash Flow and Inventory Turnover

Overstocking inventory is a primary cause of retail bankruptcy. Excess stock sits in warehouses, accumulating carrying costs and reducing working capital. To evaluate these carrying costs, combine OTB with an inventory turnover calculator.

Utilizing OTB planning allows buyers to respond dynamically to changing market demands. If a specific product line sells faster than expected, actual ending inventory drops, which increases the OTB budget to fund re-orders.

For multi-location stores, managers calculate OTB separately for each store and product category, ensuring that buying budgets are allocated to high-performing product lines.

Related concepts

Markdown

A reduction in the retail selling price of merchandise to accelerate sales.

Stock Shrinkage

Inventory loss due to theft, damage, errors, or administrative fraud.

Cost Complement

The percentage of a product's retail price that represents its cost.

Frequently Asked Questions

What is Open-to-Buy (OTB)?+

A financial budget that determines the dollar amount of inventory a retail buyer can purchase during a given period to meet sales and inventory targets.

How is Open-to-Buy calculated?+

OTB = Planned Sales + Planned Markdowns + Target Ending Inventory minus Beginning Inventory.

What are planned markdowns?+

Projected price reductions, promotional discounts, staff discounts, and inventory shrinkage (theft/damage) for the month.

Why is OTB calculated at retail value?+

OTB is typically planned at retail value to align with planned sales targets, then converted to cost using the store's average cost-to-retail ratio.

What happens if actual sales are lower than planned?+

Your beginning inventory for the next month will be higher, which automatically reduces your next OTB purchase budget.

What is beginning inventory?+

The total retail value of inventory on hand at the start of the month.

What is ending inventory?+

The target retail value of inventory you want to have in stock at the end of the month to prepare for the next month's sales.

How does OTB prevent overstocking?+

By constraining purchases to only what is needed to cover sales, markdowns, and ending inventory targets, preventing buyers from purchasing excess stock.

What is a stock-to-sales ratio?+

The ratio of inventory value on hand at the beginning of the month to planned sales for that month, measuring stock depth.

Can OTB be negative?+

Yes, if beginning inventory exceeds total requirements, OTB is negative, meaning the store is overstocked and should halt purchasing.

How do I convert retail OTB to cost?+

Multiply the retail OTB by the cost complement percentage (100% minus initial markup percentage).

How often should buyers calculate OTB?+

OTB should be calculated monthly and updated weekly during busy holiday seasons to adjust to real-time sales trends.

How to understand and use this calculator

The Fundamentals of Open-to-Buy (OTB) Planning

Managing Planned Reductions and Inventory Targets

Optimizing Retail Cash Flow and Inventory Turnover

For multi-location stores, managers calculate OTB separately for each store and product category, ensuring that buying budgets are allocated to high-performing product lines.

Related concepts

Markdown

A reduction in the retail selling price of merchandise to accelerate sales.

Stock Shrinkage

Inventory loss due to theft, damage, errors, or administrative fraud.

Cost Complement

The percentage of a product's retail price that represents its cost.

Frequently Asked Questions

What is Open-to-Buy (OTB)?+

A financial budget that determines the dollar amount of inventory a retail buyer can purchase during a given period to meet sales and inventory targets.

How is Open-to-Buy calculated?+

OTB = Planned Sales + Planned Markdowns + Target Ending Inventory minus Beginning Inventory.

What are planned markdowns?+

Projected price reductions, promotional discounts, staff discounts, and inventory shrinkage (theft/damage) for the month.

Why is OTB calculated at retail value?+

OTB is typically planned at retail value to align with planned sales targets, then converted to cost using the store's average cost-to-retail ratio.

What happens if actual sales are lower than planned?+

Your beginning inventory for the next month will be higher, which automatically reduces your next OTB purchase budget.

What is beginning inventory?+

The total retail value of inventory on hand at the start of the month.

What is ending inventory?+

The target retail value of inventory you want to have in stock at the end of the month to prepare for the next month's sales.

How does OTB prevent overstocking?+

By constraining purchases to only what is needed to cover sales, markdowns, and ending inventory targets, preventing buyers from purchasing excess stock.

What is a stock-to-sales ratio?+

The ratio of inventory value on hand at the beginning of the month to planned sales for that month, measuring stock depth.

Can OTB be negative?+

Yes, if beginning inventory exceeds total requirements, OTB is negative, meaning the store is overstocked and should halt purchasing.

How do I convert retail OTB to cost?+

Multiply the retail OTB by the cost complement percentage (100% minus initial markup percentage).

How often should buyers calculate OTB?+

OTB should be calculated monthly and updated weekly during busy holiday seasons to adjust to real-time sales trends.

Retail Open-to-Buy (OTB) Planner

Inputs

Results

Bookmark this OTB calculator

Open-to-buy formula

How the calculation works

Boutique retailer example

Learn more about this calculation

Break-Even Analysis: Formula, Example, and Calculator

Saving and Exporting Calculations: How to Keep and Reuse Your Results

Retail Open-to-Buy (OTB) Planner

Inputs

Results

Bookmark this OTB calculator

Key output metrics

Inventory Budget Allocation

How to understand and use this calculator

The Fundamentals of Open-to-Buy (OTB) Planning

Managing Planned Reductions and Inventory Targets

Optimizing Retail Cash Flow and Inventory Turnover

Related concepts

Frequently Asked Questions

Open-to-buy formula

How the calculation works

Boutique retailer example

Learn more about this calculation

Break-Even Analysis: Formula, Example, and Calculator

Saving and Exporting Calculations: How to Keep and Reuse Your Results

Key output metrics

Inventory Budget Allocation

How to understand and use this calculator

The Fundamentals of Open-to-Buy (OTB) Planning

Managing Planned Reductions and Inventory Targets

Optimizing Retail Cash Flow and Inventory Turnover

Related concepts

Frequently Asked Questions