If there’s one number that separates retailers who go into Q4 with confidence from retailers who go in guessing, it’s open-to-buy. Yet it’s one of the most misunderstood terms in independent retail—partly because it sounds more complicated than it is.

What OTB actually means

If you’re looking to define OTB in one line: it’s a budgeting formula that tells you how much inventory dollars you have available to purchase in a given period, based on what you’re already carrying, what’s on order, and what you expect to sell. Put simply: it’s the answer to “how much can I actually spend on new stock right now without overbuying?”

The standard formula, as laid out by Shopify, is:

OTB = (Planned sales + Planned markdowns + Planned ending inventory) − Planned beginning inventory

Some retailers also subtract merchandise already on order from that total, since it’s committed spend that hasn’t hit the floor yet.

Why it exists

Retail has two expensive failure modes: overbuying and underbuying. Overbuying ties up cash in inventory that sits, ages, and eventually gets marked down. Underbuying means empty shelves during your best-selling weeks — lost sales you can’t get back. OTB exists to keep both from happening by giving you a defensible number before you place an order, instead of a gut-feel guess.

A simple worked example

Say a boutique starts the month with $50,000 in inventory, has $20,000 on order, plans $100,000 in sales, and wants to end the month with $30,000 in stock:

OTB = ($100,000 + $30,000) − ($50,000 + $20,000) = $60,000

That’s the ceiling — the retailer can commit up to $60,000 in new purchases that month without breaking the plan. Note that the “planned sales” number driving that ceiling is only as reliable as the pricing behind it — if your markup percentage is inconsistent from item to item, your planned sales dollars will be too.

Where independent retailers actually use it

• Category-level budgeting. Most retailers don’t run one store-wide OTB number — they break it out by department or category so they’re not overspending in outerwear while running short in accessories.
• Seasonal planning. OTB is most valuable exactly where retailers are right now: heading into a period (Q4) where sales, markdowns, and inventory needs all shift dramatically from the rest of the year.
• Weekly check-ins. OTB isn’t a set-it-and-forget-it number. Retailers who update it weekly or biweekly as actual sales come in make faster, better-informed buying calls than retailers who build a plan in August and never revisit it.

Common mistakes

The most frequent OTB mistake independent retailers make isn’t math — it’s neglect. Building a plan and then buying off instinct anyway defeats the purpose. The second most common mistake is planning at too high a level (one number for the whole store) instead of by category, which hides where the real over- or under-buying is happening.

Getting started

If you’ve never run an OTB plan, don’t try to build a perfect one on the first pass. Start with your biggest category, plug in last year’s numbers if you have them, and adjust the formula monthly as real sales data comes in. The goal isn’t precision on day one — it’s having a number to check your buying decisions against instead of flying blind into Q4. Once the budget is set, the next step is turning it into actual orders — which is where automating purchase orders saves the most time.

This is exactly the kind of planning work 360 Retail Management builds into its inventory and OTB consulting for independent retailers — turning a formula on a spreadsheet into a repeatable monthly habit.

Related reading: Is Inventory a Current Asset? · How to Calculate Markup Percentage · Automating Purchase Orders · Do Independent Retailers Need an Inventory Forecasting Tool?