Inventory how-to

How to plan an open to buy budget

Open to buy is the amount you can spend on new inventory in a given period without overbuying.

Short answer: Open to buy is the amount you can spend on new inventory in a given period without overbuying. You calculate it as planned sales plus planned end-of-period stock, minus stock you already have on hand and on order. Build it monthly or by purchase cycle, per category or per supplier, and adjust as actual sales come in.

What open to buy actually measures

Open to buy (OTB) is a budget cap for purchasing, not a sales forecast by itself. It answers one question: how much new stock can you commit to this month without ending up overstocked or starving your bestsellers. You need a sales plan, a target stock level, and a clear picture of what is already on hand or on order to calculate it.

The basic formula

OTB = (Planned sales + Planned ending inventory) - (Current inventory + On order inventory)

Planned sales is your forecast for the period in units or dollars. Planned ending inventory is how much stock you want left at the end of the period, usually set as weeks or days of cover. Current inventory is what is sitting in stock now. On order is anything already committed to a supplier but not yet received.

Set it at the right level

Running OTB for the whole store at once hides problems. Break it down by category, by supplier, or by price tier if your suppliers and lead times differ a lot. A supplier with a six week lead time needs a different buying rhythm than one that ships in three days, so lumping them together makes the number useless for deciding when to place an order.

Revisit it regularly, not just once a quarter

OTB is only useful if you update it against actual sales. If a category is running hot, your planned sales were too low and the real OTB is higher than what you budgeted. If it is running cold, cut the budget before you commit cash to stock that will sit. Check it at least monthly, and more often in your top categories.

Step by step

  1. List every category or supplier group you plan to budget separately.
  2. Set a planned sales figure for the period, based on recent actual sales plus any known promotions or seasonal shifts.
  3. Decide your target ending stock level, expressed as days or weeks of cover.
  4. Pull current on-hand inventory and anything already on order for that group.
  5. Calculate OTB = planned sales + planned ending inventory - (on hand + on order).
  6. Compare OTB against what suppliers actually require in case packs or minimum order quantities, and adjust down if OTB is smaller than a minimum order.
  7. Review actual sales against plan every few weeks and recalculate OTB for the rest of the period.

Worked example

A store plans $20,000 in sales for a category next month and wants 3 weeks of cover left at the end, worth about $9,000 at current sell-through. It currently holds $12,000 in that category and has $4,000 already on order. OTB = ($20,000 + $9,000) - ($12,000 + $4,000) = $13,000. That is the ceiling for new purchase orders in that category for the month, before checking it against supplier minimums.

How SteadyShelf helps

SteadyShelf does not build or track an open to buy budget. It forecasts sales per variant and tells you when to reorder and how much based on lead time and safety days, which gives you the planned sales and reorder quantity inputs you need, but you still have to set the dollar budget and ending stock target yourself in a spreadsheet.

$29/month flat, unlimited products and suppliers, 30-day free trial. Run the numbers now with the free reorder point calculator.

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FAQ

Should open to buy be in units or dollars?

Dollars work better for budgeting and cash flow because it lets you compare across categories with different price points. Units work better when you are deciding exact reorder quantities per SKU. Many stores plan OTB in dollars at the category level and then convert to units per SKU when placing the actual order.

What if actual sales come in way above or below plan mid-month?

Recalculate OTB with the actual sales to date plus the revised forecast for the remaining days, instead of waiting for the next planning cycle. If sales are running hot, your true OTB is higher and you should order sooner to avoid stockouts. If sales are soft, cut planned purchases before cash gets tied up in slow stock.

Let SteadyShelf do this math for every SKU

Order-by dates per supplier, seasonal forecasts and draft POs for your Shopify store. $29/month after a 30-day free trial.

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