Open-to-Buy for Retail: Formula, Example and Boutique Buying Plan

Most boutique owners decide whether to place another order by checking the bank account. That's how you end up with a full storage room and an empty checking account in the same week. Open-to-buy replaces the gut check with a number.

I'm Carina Hatton — boutique owner since 2013, ecommerce coach since 2019. Open-to-buy has a reputation as a big-chain planning tool, and honestly the way most retail textbooks explain it earns that reputation. This is the small-boutique version: one formula, one worked example, and the handful of decisions it should actually change.

What open-to-buy actually answers

Open-to-buy (OTB) is a period-based buying limit expressed in retail dollars. In practice it answers four questions you're already asking every month:

• Can I place another wholesale order right now?
• Am I already overbought?
• How much of this month's inventory budget is still available?
• Should I be reordering winners, or should I stop buying entirely?

Note what it doesn't answer: what to buy. OTB sets the size of the box. Sell-through decides what goes in it.

Why retailers use open-to-buy

Retailers use open-to-buy to control how much inventory they buy so stock stays in line with expected sales. Department stores and small boutiques use the same idea. It stops a buyer from spending next month's inventory money this month, keeps enough room to reorder what sells, and makes overbuying visible before the order is placed instead of after the boxes arrive.

The open-to-buy formula

The standard retail-dollar calculation is:

Open-to-Buy = Planned Sales + Planned Markdowns + Planned Ending Inventory − Beginning Inventory − Inventory Already On Order

In plain boutique language:

• Planned sales — the retail sales you expect this period. Last year's same month adjusted for what you know about this year is a perfectly good starting point.
• Planned markdowns — the retail dollars you expect to give up to sales, clearance, and discount codes. This is real inventory leaving the building at less than full price, so the plan has to include it.
• Planned ending inventory — the retail value of the stock you want on hand on the last day of the period. Not a wish; the amount you need to open the next month properly.
• Beginning inventory — the retail value of everything on hand at the start of the period.
• Inventory already on order — merchandise you've committed to but haven't received. This is the field owners forget, and forgetting it is what turns a "positive" OTB into an overbought month.

Keep everything in retail dollars, and keep every figure inside the same period. Mixing wholesale cost into one line and retail into another is the fastest way to get a confident, wrong answer.

If any of those inputs are unfamiliar, the retail math cheat sheet defines each one alongside the other formulas a store uses.

A worked example

These numbers are illustrative — they are not benchmarks, and your boutique's figures will look different depending on category, season, and size.

So this boutique has roughly $7,500 of retail buying room left for the month. Change one thing — say another $6,000 order was already placed and forgotten — and the same boutique is $1,500 over plan without a single new purchase order.

You don't have to do this by hand. The Boutique Open-to-Buy Calculator runs the same formula and shows the breakdown line by line.

Positive, zero, and negative OTB

Positive OTB

There's room left inside the plan. That doesn't mean spend all of it. A supplier's minimum order quantity does not decide what your plan can afford. Positive OTB is permission to consider an order, not instruction to place one — cash timing, vendor lead times, and what's actually selling all still apply.

Open-to-buy answers whether you can spend. It does not answer when a replenishable style needs reordering, which is a timing question you can settle with the inventory reorder point formula.

OTB near zero

The plan is essentially allocated. New buying should generally wait for the next period, or displace something already planned rather than stack on top of it.

Negative OTB

You're overbought relative to the current plan: on-hand plus on-order exceeds what the plan calls for. The usual moves are to pause new orders, focus on selling through what's already in the building, ask vendors about delaying or trimming an open order where that's possible, and re-examine whether the planned sales number was too conservative in the first place. A negative result is a signal to slow down and look, not a verdict on the business.

How open-to-buy prevents overbuying and protects cash

Open-to-buy prevents overbuying by subtracting everything you already own and have on order before you place a new order. If the result is small or negative, the plan is already full, even if the bank account looks healthy.

That protects cash in a simple way. Every dollar of inventory above plan is a dollar you can't use for rent, payroll, marketing or a reorder of your best seller. Because OTB is kept in retail dollars, remember to convert it to cost before comparing it to cash. Hypothetical example: if your products average a 50% margin, $7,500 of retail OTB is roughly $3,750 at cost.

Building a monthly buying budget

1. Set planned sales for each month of the season, starting from the same months last year if you have them.
2. Plan markdowns for any sale or clearance events you already know about.
3. Decide planned ending inventory for each month. Before a big selling season this goes up, and after it this comes down.
4. Carry each month's ending inventory forward as the next month's beginning inventory.
5. Subtract open purchase orders in the month they will arrive.
6. Split the result into reorders of proven styles, new styles and a small test budget.

When actual sales differ from plan

Plans are guesses, so check OTB against real results at least monthly and before any large order or market trip. When sales come in below plan, lower planned sales for the coming months and your OTB shrinks with it. That is the formula protecting you from buying into a slowdown. When sales beat plan, OTB grows, but check which products drove it before spending the extra room. Those are the styles that earned the reorder.

How a small boutique should actually use open-to-buy

• Protect room for reorders. Proven sellers are the safest dollars you'll spend. Deliberately reserve part of your OTB for restocking winners instead of committing all of it to new styles at market.
• Budget a test line. Carve out a slice for new products or categories, bought shallow. If you're testing a whole new category, size the assortment in the Inventory Buy Planner first, and split the budget across categories and price bands with retail assortment planning.
• Plan seasonally, not just monthly. A pre-season month legitimately runs a bigger OTB because planned ending inventory is higher. Don't panic when the number swings.
• Always subtract on-order. Keep one running list of every purchase order that hasn't landed yet. Without it, OTB is decoration.
• Don't spend to the last dollar. OTB is measured in inventory, not cash. Keeping cash uncommitted is how you handle a slow month or an unexpected opportunity.
• Include the markdown plan. If you know a clearance event is coming, it belongs in planned markdowns before you buy against the month. Price it in the markdown calculator.

OTB tells you how much; sell-through tells you what

These are two different jobs. Open-to-buy sets the ceiling on how much you can buy. Sell-through — how fast each style clears the units you bought — decides which products deserve those dollars. A boutique with healthy OTB and no sell-through discipline just buys the wrong things faster.

The sell-through side has its own guide: sell-through rate for boutiques covers the formula, the measurement window, and the reorder framework, and the Sell-Through & Reorder Calculator runs a single style. The wider metric set and the weekly tracking system live in boutique inventory management — I won't repeat either here. Pair them: let sell-through pick the styles, then calculate OTB monthly to see what fits.

OTB and inventory turnover

Open-to-buy and inventory turnover pull in the same direction. Keeping planned ending inventory lean relative to sales means less stock sitting around, which usually means faster turnover and less cash tied up. If your OTB keeps coming out negative, check your turnover in the inventory turnover calculator. Slow turnover is often the reason the plan keeps filling up.

If you haven't launched yet

OTB gets useful once you have a plan and a history to plan against. Before that, there's no beginning inventory and no planned sales worth the name. If you're still deciding your very first buy, start with how much inventory to start a boutique with and size the assortment in the Boutique Inventory Buy Planner.

The simplest way to keep the two straight:

• Inventory Buy Planner — planning the initial or seasonal order assortment: what to buy, how many units, across which categories.
• Open-to-Buy Calculator — controlling ongoing monthly buying once the store is running.

Six mistakes that make OTB useless

• Forgetting merchandise already on order. The single most common error, and it always overstates your room.
• Treating the bank balance as the inventory budget. Cash in the account includes money owed to vendors, taxes, and rent. OTB is an inventory plan, not a cash plan — you need both.
• Raising planned ending inventory to justify a buy. If you inflate the ending number every time you want to place an order, the formula becomes a rubber stamp.
• Ignoring markdowns. Leaving planned markdowns out understates what leaves the building and makes the month look tighter than it is — then the clearance event blows up the plan anyway.
• Buying through a slowdown. When sales come in under plan, planned sales for the next period should come down too. Buying on the original plan is how boutiques end a season overbought.
• Running OTB without looking at what's selling. A number without sell-through data behind it just gives permission to repeat last month's mistakes.

If the assortment itself has grown faster than the budget, how many SKUs a small boutique should carry covers pruning and controlled expansion.

Putting it to work this month

Pull five numbers: planned sales, planned markdowns, planned ending inventory, beginning inventory, and everything currently on order. Run them through the open-to-buy calculator. If you are about to place a wholesale marketplace order, the first order planner helps you fit it inside that number, and the landed cost calculator adds shipping to your unit cost. Then, before you commit any of that room, check each candidate's landed margin in the profit margin calculator. When the room is real and you need somewhere to spend it, wholesale vendors for boutiques is the shortlist to work from.