Merchandise financial planning (MFP) is a retail-planning discipline that plans sales, inventory levels, margin, markdowns, and inventory receipts together for a period or season, usually by category. It turns a demand forecast into a coordinated plan for how much to sell, how much stock to hold, what margin to target, and how much to buy. Open to buy is the buying component of MFP.
What are the components of merchandise financial planning?
The core components are a sales plan (what you expect to sell), an inventory plan (the stock level to support those sales, often in weeks of supply or turns), a markdown plan (planned discounts and their margin impact), a margin plan (target gross margin), and a receipt or open-to-buy plan (how much inventory to buy and when). Together they keep sales, stock, margin, and buying consistent.
Andrew Erickson is the founder of Inventory Hero. He has spent years working with Amazon FBA sellers on demand forecasting, restock planning, and the cash flow side of running a private-label brand. Inventory Hero exists because every spreadsheet-based inventory system he tried eventually broke — usually right before Q4.
Can a small Amazon seller do merchandise financial planning?
Yes, in a lightweight form. You do not need a retail-planning department; a monthly or seasonal plan of expected sales, target inventory, planned markdowns, and the resulting open-to-buy budget captures most of the value. The goal is to make buying follow a plan tied to demand and cash, rather than reacting to supplier minimums or stockout fear, which is exactly the discipline a growing FBA catalog needs.
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Merchandise financial planning (MFP) is the discipline of planning your sales, inventory, margin, and buying together for a period, so purchasing follows a plan instead of reacting to stockouts. The short version: it has a handful of connected components (sales, inventory, markdown, margin, and receipt or open-to-buy plans), it turns a forecast into a coordinated buying and stocking plan, and FBA sellers can run a lightweight version. Below are the components and how to apply them.
MFP comes from retail, where buyers plan a season's sales, inventory, margin, and receipts by category before it begins. The point is to connect the pieces: your buying should support your planned sales at your target margin and inventory level, not float free of them.
For an ecommerce or FBA seller, MFP is the layer above day-to-day reordering. Reordering answers "what do I buy this week for this SKU"; MFP answers "what is my whole plan for sales, stock, margin, and spend this period," which is what makes the weekly reorders add up to a coherent strategy.
A merchandise financial plan has five connected parts:
Sales plan. What you expect to sell in the period, from your forecast, by category or product group.
Inventory plan. The stock level needed to support those sales, usually expressed in weeks of supply or turns.
Markdown plan. The discounts you expect to run and their margin cost, planned rather than reactive.
Margin plan. The gross margin you are targeting, which the sales, cost, and markdown plans have to deliver.
Receipt / open-to-buy plan. How much inventory to buy and when, so stock arrives to support the sales plan without overbuying. This is the open to buy figure.
Each depends on the others: change the sales plan and your inventory and buying plans move with it. That interdependence is the whole point.
Start with the sales plan from your demand forecast.
Derive the inventory plan as the stock needed to support those sales at your target service level.
Layer in markdowns for what you expect to discount, and check the margin plan still holds.
Compute the receipt / open-to-buy plan as the buying needed to move from your current stock to the planned inventory while covering sales and markdowns.
Put money on it. Say you sell 40,000 dollars a month at cost and want 45 days of cover, roughly 60,000 dollars of target inventory. You expect 1,000 dollars of markdowns, you hold 35,000 dollars now, and you have 10,000 dollars on order. Your open-to-buy for the month is 60,000 plus 40,000 plus 1,000, minus 35,000, minus 10,000, which is 56,000 dollars. That is the receipt plan: how much you can commit this month to land at your target inventory while covering sales and markdowns. Every component above fed that one number, which is what makes the framework concrete rather than abstract. The output is a period buying budget tied to demand and margin, which keeps a growing catalog from over-buying its winners and starving its cash.
Real merchandise planning reconciles two directions, and doing both is what makes the plan trustworthy:
Top-down starts from a business target: you want to grow sales 20 percent this quarter, so you plan category sales and the inventory and buying to support it.
Bottom-up builds from the details: you forecast each product group's sales from its own history and trend, then roll them up.
The two rarely match on the first pass, and the gap is the useful part. If bottom-up falls short of your top-down growth target, you have to find the products or promotions to close it, or accept a lower target, before you commit the buying plan. Planning only top-down produces a wish; planning only bottom-up misses the strategic goal. Reconciling them is what turns a forecast into a plan you can buy against.
Merchandise financial planning coordinates your sales, inventory, margin, markdown, and buying plans for a period so they agree with each other and follow demand. Its components connect in a chain from sales forecast to open-to-buy budget, and even a lightweight monthly version turns reactive buying into deliberate strategy for an FBA catalog. Run it above your operational reordering, feed it into open to buy, and use product segmentation to plan groups differently.