Open-to-buy (OTB) is one of the most important tools in a retail planner's arsenal and one of the most frequently misused. Get it right and you have a clear, living budget that tells your buyers exactly what to purchase, when to commit, and how much room they have to work with. Get it wrong and you end up over-inventoried in the wrong categories, under-inventoried in the right ones, and scrambling to explain a margin miss.
This guide covers how OTB works, how to calculate it with a realistic example, when to use each OTB method, and how tariff uncertainty is making the tool more important than ever.
What Is Open-to-Buy?
Open-to-buy is a budget for future inventory receipts, calculated for a specific window of time. It tells you how much you can still purchase, in units, retail dollars, or cost dollars, without exceeding your planned inventory position.
OTB isn't a set-it-and-forget-it number. It updates as actual sales and receipts come in, which is what makes it useful. A plan that doesn't reflect what's actually happening in your business isn't a plan, it's a wish.
In the UK and South Africa, the same tool is called WSSI (Weekly Sales, Stock and Intake). Different name, identical concept.
The OTB Formula
At its core, OTB answers a simple question: given what I've planned and what I've already committed to, how much do I still have left to buy?
OTB = Planned Receipts - On-Order Commitments
But to calculate planned receipts, you first need to know your sales plan, your ending inventory target, and your beginning inventory. Put together:
Planned Receipts = Planned Sales + Planned Ending Inventory - Beginning Inventory
OTB = Planned Receipts - On-Order Commitments
OTB Worked Example
Let's put real numbers to it.
Say you're planning the fall season for a mid-size women's apparel brand. Here are your inputs for the quarter:
- Beginning inventory (retail value): $500,000
- Planned sales: $800,000
- Planned ending inventory (retail value): $350,000
- Already on order: $250,000
Step 1: Calculate planned receipts
Planned Receipts = $800,000 (planned sales) + $350,000 (ending inventory) - $500,000 (beginning inventory)
Planned Receipts = $650,000
Step 2: Calculate OTB
OTB = $650,000 (planned receipts) - $250,000 (on order)
OTB = $400,000
This means your buyers have $400,000 in retail value they can still commit to. Not a dollar more without busting your inventory plan.
Now say your sales plan turns out to be conservative — the season opens strong and you're tracking $900,000 in planned sales instead. You re-run the math:
Planned Receipts = $900,000 + $350,000 - $500,000 = $750,000
OTB = $750,000 - $250,000 = $500,000
Your OTB just opened up by $100,000. That's a real buying decision and it only becomes visible if you're actively maintaining your OTB against actual data.
The Three OTB Methods: Retail, Cost, and Units
OTB can be calculated in retail dollars, cost dollars, or units. Most retailers pick one as their primary method, but understanding all three helps you know which one to use when.
1. Retail (Revenue) Method
You express OTB in retail selling price. This is the most common method for apparel and soft goods retailers because it ties directly to your revenue plan and is easy to compare against sales data.
Use this when: You're managing sell-through targets, planning markdowns, or you need OTB to connect directly to your financial plan. Retail OTB maps cleanly to your top-line revenue goals.
Watch out for: Margin variability. Two products can have the same retail value but very different costs, which means retail OTB alone won't tell you how much cash you're actually committing.
2. Cost Method
You express OTB in what you're actually paying suppliers — landed cost. This is the number that moves cash.
Use this when: Your finance team is managing cash flow tightly, you're dealing with multiple vendor cost structures, or you need to align OTB to a purchasing budget denominated in cost dollars (which is common in tighter-margin categories).
Watch out for: It's harder to compare cost OTB directly against retail KPIs like sell-through rate without conversion. You'll often want both views running simultaneously.
3. Unit Method
You express OTB as a number of units, how many pieces you can still buy. This is often the most intuitive method for planners managing store assortments, because inventory in a physical store has a real capacity constraint.
Use this when: You're managing floor sets, planogram-driven assortments, or any situation where space is the binding constraint rather than dollars. Unit OTB is also useful for planning replenishment of basics, where the order quantities are more standardized.
Watch out for: Unit OTB doesn't reflect price differences between SKUs. A unit plan that treats a $30 top and a $150 jacket the same will produce a misleading picture of your financial position.
Most merchandise planning teams work in retail OTB as the primary view, with cost OTB available for finance alignment and unit OTB available for floor-level assortment decisions. Modern planning platforms make it straightforward to toggle between all three.
OTB and Merchandise Financial Planning: How They Connect
OTB doesn't exist in isolation. It lives at the intersection of merchandise financial planning (MFP) and the actual buying process, which is exactly why it's so powerful when managed well.
Here's how the flow works:
Your MFP sets the financial guardrails: sales targets by category, inventory targets, margin goals. Those targets then flow down into receipt plans by category and month. OTB is the mechanism that translates those receipt plans into actionable purchasing budgets: telling buyers, at the category level, exactly how much they can commit and by when.
Without OTB, MFP targets stay abstract. Buyers make purchasing decisions based on gut feel or whatever open orders they can find in a spreadsheet. Plans and actuals drift apart, and by the time someone notices, you're already over-committed in one category and under-committed in another.
With OTB actively maintained, MFP targets stay connected to what buyers are actually doing. When the sales plan changes, OTB updates. When an order is canceled, OTB opens back up. The plan stays live.
This connection, MFP to OTB to buying decisions, is where planning organizations either create or destroy margin.
When to Update Your OTB
Weekly, at minimum, while you're in season. Specifically, update it when the prior week's actuals have posted.
A few things to watch for that should immediately trigger an OTB review:
Sales outpacing plan. Your receipts plan needs to increase to support higher sell-through. If you don't catch this early, you'll hit stockouts mid-season with no lead time left to fix it.
Sales lagging plan. Your ending inventory position is going to be higher than planned. That's excess stock, and excess stock is the fastest way to destroy margin.
Order cancellations. A canceled order reopens OTB. Without updating the plan, your buyers don't know they have room to fill.
Lead time pressure. OTB without lead times is incomplete. If you're working with 16-week lead times and your OTB still has open capacity at week 12, you have a problem. You need to commit or accept that you won't have the product.
How Tariffs Are Changing OTB Planning
Retailers sourcing from overseas have always had to manage lead time risk. What's changed recently is that they now have to manage cost risk at the same time, and the two interact in ways that can quickly make an OTB obsolete.
Here's the problem. Your OTB is built on a cost or retail value assumption. That assumption is tied to a landed cost estimate. When tariffs shift, even a modest increase in duties on goods from a major sourcing country, your cost assumptions change, and your OTB numbers change with them.
What this means in practice:
Your cost OTB narrows without any buying action. If you had $400,000 in cost OTB and your average landed cost just increased 15% due to new tariffs, the same units now cost more. Your effective buying power has decreased even though your financial plan hasn't changed.
Your retail OTB may still look fine. If you're managing retail OTB and haven't yet reflected the cost increase in your pricing assumptions, you're looking at a number that doesn't reflect what you're actually spending.
Vendor negotiations become part of OTB management. Some suppliers will absorb part of a tariff increase. Others won't. Until those conversations resolve, your on-order costs are uncertain which makes your OTB uncertain.
The right response is to run your OTB in both retail and cost simultaneously during periods of tariff volatility. That way you can see immediately when cost changes are squeezing your margin, before you've committed to buys you can't unwind.
You also want to review lead time decisions more carefully. In a stable cost environment, extending lead times to get better unit prices often makes sense. When tariff risk is high, locking in longer commitments increases your exposure to cost changes that haven't happened yet.
OTB Limitations
OTB is a powerful tool, but it has a defined scope.
It's not designed for automatic replenishment of staple items. If you're managing basics with consistent velocity, basics replenishment is better handled through min/max inventory rules or an automated replenishment program that triggers orders when stock falls below a threshold.
It also doesn't make decisions on its own. OTB tells you how much you can buy. It doesn't tell you whether a given item is worth buying, how to allocate across locations, or how a new style will perform. Those decisions still belong to your team.
And OTB is only as good as the data feeding it. If your sales actuals are a week behind, your OTB is a week behind. If your on-order data is incomplete, your OTB is optimistic. Getting the data hygiene right is a prerequisite for OTB to work the way it should.
How to Get Started
OTB planning doesn't require sophisticated tools to begin with. The framework is straightforward:
- Set your sales plan by category and time period
- Set your inventory targets (beginning and ending) for the same periods
- Calculate planned receipts
- Compare against what's already on order
- The difference is your OTB — your available buying budget
The harder part is keeping it current. That means pulling weekly actuals, updating your plans as the season trends, and making sure your buyers are working from the same numbers as your planning team.
For teams managing multiple categories, channels, or locations, maintaining OTB manually in spreadsheets becomes the bottleneck. The math isn't complicated; the volume and version control is. That's where a planning platform pays for itself: not in the calculation, but in keeping the whole thing synchronized as actuals roll in and plans evolve.
Summary
Open-to-buy is the link between your merchandise financial plan and your buying decisions. When it's maintained well, your buyers know exactly what they can commit to and your inventory position stays aligned to your plan. When it's neglected, the gap between plan and reality widens and you find out at end-of-season when the damage is already done.
Three things separate teams that use OTB well from teams that use it in name only: they update it weekly against real data, they run it in both retail and cost to catch margin pressure early, and they connect it directly to their MFP targets so category-level buying decisions don't drift from the financial plan.
