What is Open to buy?

Open to buy stops you from overspending on inventory when cash is already tied up in stock that has not sold. If you plan a budget for the month and track open to buy against it, you know how much room you have left before you commit to another purchase order.

To use it, set a stock budget for a period, subtract what you have on order and on hand, and that is what you can spend. Check it before approving any new purchase order so you do not overcommit cash to inventory.

Formula

Example

A candle store sets a stock budget of $5,000 for the month. It currently holds $2,000 of candles in stock and has $1,000 already on order with a supplier. Open to buy is $5,000 - ($2,000 + $1,000) = $2,000. The owner can place new orders up to $2,000 before going over budget.

Common mistakes

• Forgetting to include stock already on order, which makes the open to buy number look bigger than it really is.
• Not updating the budget when sales are slower or faster than planned.
• Treating open to buy as a hard target to spend rather than a ceiling not to cross.

Open to buy and SteadyShelf

SteadyShelf forecasts demand and suggests order quantities per SKU, so you can check a proposed purchase order against your open to buy budget before approving it.

SteadyShelf is launching on the Shopify App Store. Join early access to get the install link first.

Related terms

Purchase order · Reorder quantity · Inventory to sales ratio · Demand forecasting · Overstock

Full inventory glossary

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