Open to Buy (OTB): Definition, Formula and Planning Guide 2026
Open to buy (OTB) explained for online sellers: what it is, the OTB formula, a worked example, and how to build a plan that controls your inventory spend.
Open to buy (OTB) explained for online sellers: what it is, the OTB formula, a worked example, and how to build a plan that controls your inventory spend.
If you have ever placed a purchase order on instinct, then found yourself short on cash a month later with shelves full of stock that is not moving, you have felt the problem that open to buy is designed to solve. Open to buy (OTB) is a merchandise planning method that tells you exactly how much new inventory you can afford to bring in over a given period, based on your sales forecast, your planned stock levels, and what you already have on order. It turns buying from a gut decision into a budget you can defend. This guide explains what open to buy means, the formula behind it, how to calculate it with a worked example, and how to build an OTB plan that keeps your cash and your stock in balance across every channel you sell on.
Open to buy is the amount of money, or sometimes the number of units, that you are free to spend on new inventory for a defined period without overshooting your plan. It is the gap between the stock you want to have and the stock you have already committed to. If your plan says you should hold $100,000 of inventory at the end of the month, and your current stock plus incoming orders already adds up to $85,000, then your open to buy is $15,000. That is what is left in the budget.
The concept comes from retail merchandise planning, where buyers manage seasonal ranges and need a disciplined way to avoid over-ordering. It applies just as cleanly to ecommerce. Whether you sell on your own storefront, on marketplaces, or both, OTB gives you a running answer to one of the hardest questions in the business: how much can I buy right now without tying up cash I will need elsewhere?
The defining idea is forward planning. OTB is not a record of what you spent; it is a forward-looking control that compares your inventory target against your existing commitments before you place the next order. Used well, it stops the two most expensive buying errors at once: ordering too much, which buries cash in dead stock, and ordering too little, which leaves you out of stock when demand is there.
Actionable Insight: Open to buy is a budget, not a forecast. The forecast predicts demand; the OTB plan decides how much inventory spend that forecast justifies right now. Keep the two jobs separate and the numbers stay honest.
At its core, OTB answers a simple question: how much more stock can I bring in to hit my planned closing inventory? The standard formula, expressed in retail value, is:
Open to Buy = Planned Closing Stock + Planned Sales + Planned Markdowns − Opening Stock − Stock on Order
Each component has a clear role:
Add up what you need (closing stock, sales, markdowns), subtract what you have already secured (opening stock, stock on order), and the difference is what you are still open to buy. If the answer is positive, you have room to purchase. If it is zero or negative, you are fully committed or overbought, and placing another order would push you past your plan.
OTB is most often calculated at retail value because that is the language of merchandise plans and sell-through targets, but you can run the same logic at cost value if you prefer to budget in cost terms. The important thing is to stay consistent: do not mix retail and cost figures inside a single calculation.
Numbers make this concrete. Imagine you run an online homeware store and you are planning the month of November for one category, say kitchenware.
Your plan for the month:
| Component | Value |
|---|---|
| Planned closing stock (end of November) | $60,000 |
| Planned sales for November | $40,000 |
| Planned markdowns | $5,000 |
| Opening stock (start of November) | $70,000 |
| Stock already on order, arriving in November | $10,000 |
Apply the formula:
Open to Buy = $60,000 + $40,000 + $5,000 − $70,000 − $10,000 = $25,000
So you have $25,000 of open to buy at retail value for kitchenware in November. That is your ceiling for new purchase orders in this category for the month. You can place orders up to that amount and stay inside your plan; go beyond it and you are eating into next month’s budget or risking excess stock.
Now flip the scenario. Suppose your opening stock had been $95,000 instead of $70,000, because October sold more slowly than expected:
Open to Buy = $60,000 + $40,000 + $5,000 − $95,000 − $10,000 = $0
Your OTB is zero. You are fully bought. Buying more kitchenware now, however tempting the supplier deal, would push you into an overbought position and tie up cash you have not planned for. This is exactly the moment OTB earns its keep: it tells you to hold, even when instinct says grab the deal.
Actionable Insight: Recalculate OTB at least monthly, and ideally weekly during peak trading. Sales rarely land exactly on forecast, and a figure that was accurate three weeks ago can be badly wrong by the time you place your next order.
Inventory is usually the largest single use of cash in a product business. Money spent on stock is money you cannot spend on marketing, hiring, or simply keeping the lights on. Open-to-buy planning matters because it puts a disciplined limit on that spend before the cash leaves the building, rather than after.
The benefits compound:
It protects cash flow. OTB stops you from over-committing to stock that will sit unsold. Every dollar held back from an over-order is a dollar available for the things that actually grow the business.
It reduces overstock and markdowns. Buying to a plan means fewer surprises at the end of the season. Less excess stock means fewer panic discounts, which protects your margins. Healthy buying discipline is one of the strongest defences against obsolete inventory building up in the first place.
It improves stock turnover. When purchases are matched to forecast demand, capital cycles through faster. That feeds directly into metrics like inventory turnover and gross margin return on investment (GMROI), both of which improve when you stop carrying stock you do not need.
It exposes problems early. A category that keeps showing negative OTB month after month is telling you something: demand is softer than planned, or you are systematically over-ordering. OTB surfaces that signal while you can still act on it.
It lowers carrying cost. Less stock on hand means lower storage, insurance, and capital costs. If you have ever totted up your true inventory carrying cost, you know how quickly excess stock erodes profit. OTB keeps that number in check.
Actionable Insight: Treat a persistently negative OTB as a planning fault, not a one-off. It almost always means your sales forecast is too optimistic or your opening stock targets are too high. Fix the plan, not just the single order.
A working OTB plan is a rolling spreadsheet or system view, broken down by category and by period. Here is how to put one together.
1. Forecast sales by category and period. Start with your sales plan. Use last year’s figures as a base, then adjust for growth, new ranges, and known events such as promotions or seasonal peaks. Good demand planning and forecasting is the foundation; OTB is only as reliable as the forecast feeding it.
2. Set your stock-to-sales targets. Decide how much inventory you want to hold relative to expected sales, usually expressed as weeks or months of cover. This determines your planned opening and closing stock for each period.
3. Record opening stock and stock on order. Pull your current inventory value and the value of all open purchase orders due to land in the period. Accuracy here is critical; a wrong opening-stock figure throws off everything downstream.
4. Account for planned markdowns. Factor in the discounts and promotions you already know are coming. Markdowns reduce stock value without full-price sales, so they have to be built into the plan rather than discovered later.
5. Calculate OTB for each category. Apply the formula to every category and period. This gives you a clear purchasing ceiling for each line of your range, not just a single blunt number for the whole business.
6. Review and adjust on a cadence. Re-run the plan weekly or monthly against actual sales. If a category is selling ahead of plan, OTB opens up and you can chase more stock. If it is behind, OTB tightens and you hold off. Pairing OTB with a sensible safety stock buffer keeps you from swinging between overbought and out of stock.
The discipline is in the cadence. An OTB plan built once and forgotten is worthless. The value comes from updating it as real sales data arrives and letting it steer each buying decision.
OTB is simple arithmetic, but it goes wrong in predictable ways.
Planning at too high a level. A single OTB figure for the whole business hides the detail that matters. One category can be wildly overbought while another is starved. Always plan by category, and ideally by sub-category for larger ranges.
Ignoring stock on order. Forgetting to subtract open purchase orders is the classic error. It makes OTB look larger than it is and leads straight to overbuying. Every committed order has to be in the calculation.
Treating the forecast as fixed. Demand moves. A plan that is never revisited drifts further from reality with every week. Recalculate against actuals, especially during peak.
Confusing OTB with available cash. OTB is a stock-value budget, not a bank balance. You can have OTB headroom and still lack the cash to fund it, particularly if receivables are slow. Sense-check OTB against your actual cash position before committing.
Mixing retail and cost values. Run the whole calculation in one currency of value. Combining retail sales figures with cost-based stock figures produces a number that means nothing.
For multichannel sellers, open to buy gets harder for one simple reason: your stock and your sales are spread across several places at once. The same SKU might sell on your own store, on Shopee, on Lazada, on TikTok Shop, and through wholesale, all drawing down a single pool of inventory. If you plan OTB channel by channel from separate reports, the numbers never reconcile, and you end up either double-counting available stock or buying for demand you have already met elsewhere.
The fix is a single, accurate view of inventory and sales across every channel. You cannot calculate a trustworthy opening-stock figure if your stock counts live in five different dashboards that update at different times. This is where a centralised platform changes the picture.
OneCart consolidates inventory and orders from all your sales channels into one system, so your stock-on-hand and sell-through figures are accurate and current rather than stitched together by hand. With one source of truth for what you hold and what is selling, the inputs to your OTB plan, opening stock, stock on order, and actual sales, stay reliable. That makes the forecast cleaner, the markdown planning sharper, and the buying decision defensible. Instead of guessing how much room you have left in the budget, you can see it, recalculate it as sales come in, and buy with confidence across every marketplace you trade on.
Open to buy is the amount you can still spend on new stock for a period without going over your inventory plan. It is the difference between the stock you want to end up with and the stock you already have or have on order. A positive figure means you have room to buy; zero or negative means you are fully committed.
Open to Buy = Planned Closing Stock + Planned Sales + Planned Markdowns − Opening Stock − Stock on Order. You add what you need over the period, subtract what you have already secured, and the result is your available buying budget, usually at retail value.
At least monthly, and weekly during busy trading periods. Sales rarely match the forecast exactly, so a figure that was right three weeks ago can be well off by the time you place the next order. Recalculating against actual sales keeps the plan useful.
They are closely related but not identical. A purchase budget is often a fixed allowance set at the start of a period. Open to buy is dynamic: it updates as sales, stock levels, and orders change, so it reflects how much you can buy right now rather than a number fixed months ago.
Open to buy turns inventory purchasing from guesswork into a controlled, repeatable plan, but it only works when the numbers feeding it are accurate. OneCart gives multichannel sellers a single, real-time view of stock and sales across Shopee, Lazada, TikTok Shop, your own storefront, and more, so your opening stock, stock on order, and sell-through figures are always current. With reliable inputs, your OTB plan becomes a tool you can actually trust to steer every buying decision. Start your free trial and take control of your inventory spend across every channel.
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