What Is Open-to-Buy (OTB) Planning?

Open-to-buy is the number that stops a great supplier deal from quietly blowing your whole quarter's inventory budget. For a growing DTC or Shopify brand buying on its own cash, it is the guardrail that keeps a confident vendor and a tempting discount from turning into stock you cannot afford to hold.

Open-to-buy, or OTB, is the dollar or unit budget available to purchase new inventory in a period, calculated from planned sales, markdowns, and existing stock. It is a merchandise budget with a formula behind it, and its whole job is to cap buys against a plan so you do not overbuy on impulse.

Key takeaways

• OTB is a budget, not a forecast: it tells you how much you can buy, not how much you will sell, though the two are linked.
• The formula nets your plan against your stock: planned needs minus what you already have or have on order equals your room to buy.
• It exists to curb overbuying: OTB caps each purchase against an agreed plan so a bulk discount cannot blow the quarter.
• Small brands benefit too: even a lean catalog stays healthier when buys are checked against a budget rather than made on gut.

What is open-to-buy planning?

Open-to-buy planning sets the budget for how much new inventory you can buy in a period, derived from planned sales and a target end-of-period stock, minus what you already have on hand or on order. It is the guardrail against overbuying, expressed as a single number you check before committing to a purchase order. For a DTC or Shopify brand spending its own working capital, OTB is less a retail-buyer formality and more a cash-flow discipline: it keeps buying tied to what sales actually support.

Think of it as your remaining room to buy. Once the plan and your existing stock are accounted for, OTB is what is left to spend, and spending past it means going over plan on purpose.

Open-to-buy is a merchandise budget you can express in dollars or in units, and most brands use dollars because that is how cash and supplier terms work. The dollar version caps total spend for the period; the unit version caps quantity, which is useful for a single fast-moving SKU. Either way, OTB translates a sales plan into a spending limit. It answers a buyer's most practical question before every order: given what I plan to sell and what I already hold, how much more can I responsibly commit this month? That framing keeps buying anchored to the plan rather than to whatever the supplier is offering this week.

OTB exists because buying inventory is easy to overdo and hard to undo. A persuasive vendor, a volume discount, or plain optimism can push a buy well past what sales will support, and that stock then sits, tying up cash and heading toward markdown. OTB imposes a check: every buy is measured against an agreed budget derived from the plan, so overbuying becomes a visible, deliberate choice rather than an accident. For a growing brand, that discipline protects the working capital that funds everything else, from ad spend to payroll. Without an OTB, buying drifts on confidence, and confidence is exactly what overstock is made of.

How do you calculate open-to-buy?

Open-to-buy equals planned end-of-period stock, plus planned sales, plus planned markdowns, minus beginning stock, minus stock already on order. The result is the room you have left to buy without overshooting your plan. Every term is something you already track or can set, which is why OTB is more discipline than math: the formula is straightforward once the plan exists.

Working a real example makes the components concrete and shows how quickly the room to buy shrinks once existing commitments are counted.

The OTB formula, component by component

Each term plays a clear role:

• Planned end-of-period stock: the inventory value you want to hold at period close, your target ending position.
• Planned sales: the sales you expect to make in the period, at cost for a dollar-based OTB.
• Planned markdowns: stock value you expect to discount or write down, which also has to be covered.
• Beginning stock: the inventory you already hold at the start of the period.
• On order: stock already committed on existing purchase orders but not yet received.

Add the first three to get everything the period needs, then subtract the last two, what you already have and have coming, to get what is left to buy.

A simple worked OTB calculation

Put numbers to it for one period. Say you want to end with 200,000 dollars of stock, you plan 150,000 dollars of sales, and you expect 20,000 dollars of markdowns. That is 370,000 dollars the period needs. You already hold 180,000 dollars in beginning stock and have 50,000 dollars on order, which is 230,000 dollars already committed. Open-to-buy is 370,000 minus 230,000, or 140,000 dollars. That 140,000 is your room to buy for the period. A vendor offering a 175,000-dollar bulk deal is now clearly over budget, and OTB has done its job: it turned a tempting offer into a visible 35,000-dollar overshoot you can decide on with eyes open.

How does OTB control overbuying?

OTB controls overbuying by capping each buy against an agreed plan, so a tempting bulk discount or a confident vendor cannot push you past the inventory your sales actually support. The number is the discipline: once the OTB for a period is spent, further buying is an explicit decision to go over plan, not a quiet drift. That visibility is most of the value.

Used consistently, OTB becomes a running buying discipline rather than a one-time calculation, and it is where a reliable forecast pays off most.

Treat OTB as a live budget you draw down, not a number you calculate once and forget. As you place orders, subtract them from the period's OTB, so you always know your remaining room to buy. When a supplier deal appears, you can see immediately whether it fits or forces an overshoot, and decide accordingly. The weak point of the whole method is the planned-sales input: if that forecast is off, the budget is off with it. Conative AI forecasts demand per SKU with proprietary deep-learning models trained on years of real eCommerce data, and scores forecast accuracy per SKU against what actually sold. The planned-sales figure your OTB rests on is one you can watch sharpen over time, which keeps the budget honest rather than optimistic. See how the forecast feeds your buying budget on the inventory planning platform, or book a call to walk through it.

Frequently asked questions

What's the difference between open-to-buy and a merchandise budget?

A merchandise budget is the broader plan for what you intend to buy and sell over a period; open-to-buy is the specific remaining amount you can still purchase within it, after accounting for stock on hand and on order. Put simply, the merchandise budget is the plan, and OTB is the live balance left to spend against that plan at any given moment.

How often should you update OTB?

Update OTB at least monthly, and recalculate whenever a major buy or a sales shift changes the inputs. Because it nets planned sales against current stock, a stale OTB drifts out of line as actual sales diverge from plan. Many brands review it monthly and adjust the remaining figure as orders are placed, so the number always reflects real room to buy, not last month's snapshot.

Is open-to-buy in units or dollars?

It can be either, and many brands use both. A dollar-based OTB caps total spend and maps to cash and supplier terms, making it the default for budgeting. A unit-based OTB caps quantity and is handy for planning a single fast-moving SKU. Use dollars for the overall period budget and units where you need to control a specific product's depth.

What happens if you go over your open-to-buy?

Going over OTB means committing more cash to inventory than your sales plan supports, which risks overstock, tied-up capital, and future markdowns. Sometimes it is a deliberate, justified choice, such as a genuine deal on a proven seller. The value of OTB is that it makes the overshoot visible, so you decide on it consciously rather than discovering the overspend after the stock arrives.

How does OTB relate to assortment planning?

OTB sets the budget; assortment planning sets the mix. You decide what range of products to carry through assortment planning, then use OTB to make sure that range fits the money available. The two work together: an attractive assortment that busts the OTB is not affordable, and a healthy OTB with no assortment plan has no shape. The mix side is covered in assortment and merchandise planning.

Does a small DTC brand need open-to-buy planning?

Yes, though it can be lightweight. Even a small brand buying on its own cash benefits from checking each buy against a simple budget derived from planned sales and current stock. It does not need a full retail-buying apparatus; a basic OTB kept in a spreadsheet is enough to stop impulse buys and vendor deals from quietly consuming the working capital the business needs elsewhere.