Glossary - Products and inventory
Open-to-buy
Open-to-buy is the inventory budget still available to spend for a period once planned sales, planned markdowns, the stock already held and the orders already placed are accounted for. It is calculated from a sales plan, at cost or at retail value. Ecommerce operators use it to keep buying in line with the plan instead of gut feel.
| Variable | Definition |
|---|---|
| Planned sales | The sales plan for the period, for this category or the whole store. |
| Planned markdowns | Inventory value expected to be given up to price reductions during the period. |
| Planned end-of-period inventory | The stock you want left when the period closes, sized to support the next period's plan. |
| Beginning inventory | Stock on hand when the period opens. |
| Stock on order | Purchase orders already placed and due to arrive within the period. |
Run every input at the same basis, cost or retail, never mixed. Merchandise planners traditionally work at retail; for cash planning, cost maps directly to the purchase orders being written.
Worked example
$47,000 of buying room remains before the month is overbought against its own plan. Every new purchase order draws it down; a sales beat or miss changes it, which is why the number gets reforecast, not filed.
What is a good open-to-buy?
Open-to-buy is a budget, not a score, so good means the discipline works rather than any particular number. A persistently large OTB says the plan is too optimistic or buying is too timid; a negative OTB says you have already overcommitted the period. What the right posture depends on is your margin structure and cash position - how much working capital the stock plan is allowed to absorb - plus the accuracy of the demand forecast behind the sales plan, supplier lead times, and how seasonal the category is. Held to plan honestly, it is the discipline that prevents both the overbuying that becomes dead stock and the underbuying that becomes stockouts.
Open-to-buy vs related metrics
| Metric | What it tells you | How it differs |
|---|---|---|
| Reorder point | The stock level that triggers a new order for one SKU | A per-SKU trigger; open-to-buy is the budget ceiling above all the triggers |
| Days of cover | How long current stock lasts at current velocity | Describes the stock you have; OTB governs the stock you may still buy |
| Working capital | The cash financing inventory, receivables and payables | The balance-sheet constraint that a disciplined OTB protects |
| Demand forecasting | Expected demand by SKU and period | The input: the sales plan an OTB is only ever as good as |
Common mistakes
- Mixing cost and retail in one calculation. Planned sales at retail against inventory at cost produces a number that means nothing. One basis, every input.
- Forgetting stock on order. Purchase orders already placed are commitments. Leaving them out overstates the room to buy by exactly their value.
- Spending the OTB because it exists. It is a ceiling, not a target. Buying to zero every month just relocates the judgement the plan was meant to impose.
- Running one number for the whole store. A surplus in one category hides a deficit in another. Plan at the category level, where the buying decisions actually happen.
- Never reforecasting. When actual sales deviate from plan, yesterday's OTB is wrong. Recompute as the period runs, not once at the start.
FAQ
Planned sales plus planned markdowns plus planned end-of-period inventory, minus beginning inventory, minus stock already on order. The result is the buying budget still available for the period, at whichever basis you planned in.
Either works, as long as every input uses the same basis. Merchandising teams traditionally plan at retail value; for an ecommerce operator managing cash, cost usually maps more directly to the purchase orders being written.
You have already committed more inventory than the plan needs: stock on hand plus stock on order exceeds planned sales, markdowns and target closing stock. The usual responses are delaying or cancelling orders, or accelerating sell-through.
Updated July 2026