# Retail Open-to-Buy (OTB) Planner Plan monthly inventory purchasing budgets from sales forecasts, markdowns, and inventory targets to avoid overstock and stockouts. --- - **Canonical URL:** https://dothecalculation.com/calculators/open-to-buy-calculator - **Category:** Business tools - **Publisher:** Do The Calculation (https://dothecalculation.com) - **Cost:** Free, no account or sign-up required - **Privacy:** Runs entirely in the browser; inputs are never sent to a server - **Methodology:** https://dothecalculation.com/methodology --- ## Calculate retail open-to-buy (OTB) budgets Input planned sales, markdowns, beginning inventory, and ending inventory targets to calculate your monthly inventory purchase budget. - Planned merchandise requirements - Open-to-buy budget limits - OTB as % of sales benchmarks ## 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](/calculators/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. ## How to Use This Calculator Enter your planned sales for the period, planned markdowns and reductions, your target ending inventory, and your beginning inventory currently on hand. The calculator adds planned sales, markdowns, and target ending inventory together for total merchandise required, then subtracts beginning inventory to give you the open-to-buy budget — the maximum you should spend on new inventory. ## Worked Example: $120,000 Planned Sales A boutique retailer plans $120,000 in sales for the month, expects $8,000 in markdowns, wants a $35,000 ending inventory target, and currently holds $48,000 of beginning inventory. Total merchandise needed: $120,000 + $8,000 + $35,000 = $163,000. Open-to-buy budget: $163,000 − $48,000 = $115,000 — the maximum new inventory spend for the month, at just under 96% of planned sales. ## Related Calculators Check how efficiently that inventory sells through with the [inventory turnover calculator](/calculators/inventory-turnover-calculator), and see the full holding cost of whatever you buy with the [inventory carrying cost calculator](/calculators/inventory-carrying-cost-calculator). ## 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. ## 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. ## Related guides - [Break-Even Analysis: Formula, Example, and Calculator](https://dothecalculation.com/blog/business/break-even-analysis) — Calculate break-even units and revenue from fixed costs, selling price, and variable cost, then test how pricing or cost changes affect the result. ## Related calculators - [Inventory Turnover & DSI Calculator](https://dothecalculation.com/calculators/inventory-turnover-calculator) — Calculate inventory turnover ratio, days sales in inventory, and carrying costs to see how efficiently stock moves through your business. - [SaaS Burn Rate & Runway Calculator](https://dothecalculation.com/calculators/saas-burn-rate-calculator) — Determine monthly burn rate, growth-adjusted runway, and revenue targets needed to reach break-even cash flow for your SaaS startup. - [Days Sales Outstanding (DSO) Calculator](https://dothecalculation.com/calculators/days-sales-outstanding-calculator) — Calculate Days Sales Outstanding and accounts receivable turnover ratio to measure how efficiently your business collects customer payments. - [Working Capital & Liquidity Calculator](https://dothecalculation.com/calculators/working-capital-calculator) — Measure business liquidity with working capital, current ratio, quick ratio, cash ratio, and Days Inventory Outstanding calculations. - [Break-Even Calculator](https://dothecalculation.com/calculators/break-even-calculator) — Calculate the exact units or revenue needed to cover fixed and variable costs and find your break-even point before turning a profit. - [Depreciation Calculator](https://dothecalculation.com/calculators/depreciation-calculator) — Estimate annual and accumulated depreciation of business assets using straight-line or declining balance methods for accurate accounting. --- _This calculator is for educational and business planning purposes only and does not constitute professional financial, tax, or legal advice. Verify all rates, margins, and contract terms before making operational business decisions._ --- _Source: [Do The Calculation](https://dothecalculation.com/calculators/open-to-buy-calculator). Quote freely with attribution and a link to this page._