Open to buy (OTB) is a merchandise-planning figure that tells you how much money you have left to spend on new inventory for a given period, given your planned sales, target ending inventory, planned markdowns, the stock you already have, and what is already on order. It is a buying budget: when your OTB reaches zero, you have committed all the inventory dollars your plan supports, which is the signal to stop buying.
How do you calculate open to buy?
The standard formula is: OTB = planned ending inventory + planned sales + planned markdowns - beginning inventory - inventory on order, all at cost (or all at retail, consistently). Start from where you want to end the period, add what you plan to sell and mark down, then subtract what you already hold and what is already coming. The result is the dollars you can still commit to new purchase orders.
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.
Because cash tied up in inventory is usually the binding constraint for an FBA business. Open to buy connects each purchase decision to a plan, so you do not over-order and freeze working capital in slow-moving stock or blow past your storage capacity. It is the discipline that keeps buying aligned with real demand and available cash rather than supplier minimums or fear of stockouts.
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Open to buy (OTB) is the dollar amount you can still spend on new inventory in a period without overbuying. The short version: it is a buying budget derived from your plan, planned sales, target ending inventory, and markdowns, minus what you already hold and what is on order, and for FBA sellers it is a cash-discipline tool that stops working capital freezing in slow stock. Below is the formula, a worked example, and how to use it.
Open to buy comes from retail merchandise planning, and it solves the most expensive mistake an inventory business makes: buying more than the plan and the cash support. It is the budget of inventory dollars still available to commit in a period, once you account for what you plan to sell, where you want to end up, and what is already in the pipeline.
Think of it as the inventory version of a spending limit. You set a plan for the period, and OTB continuously answers "given everything already committed, how much more can I buy?" When it is positive, you have room; when it is zero or negative, you are at or over your planned inventory investment.
The standard open-to-buy formula, all figures at cost (or all at retail, applied consistently):
OTB = planned ending inventory + planned sales + planned markdowns - beginning inventory - inventory on order
Planned ending inventory is the stock you want to hold at the end of the period.
Planned sales is what you expect to sell (at cost, if working at cost).
Planned markdowns is inventory value you expect to lose to discounts or shrink. For an FBA seller this is not department-store floor markdowns; it is your coupons, lightning deals, and price drops to move aging stock, plus any disposal or removal cost, often roughly 2 to 5 percent of cost for a healthy catalog and more during a Q4 clearance.
Beginning inventory is what you start the period holding.
Inventory on order is what you have already committed but not yet received.
The logic reads left to right: total up everything you need to have flowed through the period (ending stock plus sales plus markdowns), then subtract what you already have and what is already coming. What is left is what you can still buy.
Say for a month you want to end with 20,000 dollars of inventory, you plan to sell 30,000 dollars (at cost), and expect 2,000 dollars of markdowns. You start the month with 25,000 dollars on hand and have 15,000 dollars already on order:
Your open to buy is 12,000 dollars: that is what you can still commit to new purchase orders this month and stay on plan. Place a 12,000 dollar order and your OTB drops to zero; the plan says you are done buying for the month.
Open to buy is a retail concept, but it maps perfectly onto the FBA seller's core problem: cash is tied up in inventory, and over-buying is the fastest way to run out of it.
It protects working capital. OTB stops you committing cash your plan does not support, which is how businesses avoid the trap of being profitable on paper but cash-poor.
It respects capacity. Buying within OTB keeps you from overrunning FBA capacity limits with stock you cannot store efficiently.
It disciplines the reorder. Instead of ordering to a supplier minimum or out of stockout fear, you order to a plan, which is what restock planning is built on.
For a growing catalog, OTB is the guardrail that keeps buying aligned with demand and cash.
To use OTB without a full retail-planning department:
Plan by period (monthly or by season), setting planned sales and target ending inventory from your forecast.
Track on-order carefully, because forgetting committed POs is the classic error that makes OTB overstate your room to buy. This is where multi-location and in-transit tracking matters.
Recompute as things change, since sales running hot or cold shifts your OTB and your buying room. Software can keep it live; see open to buy software.
Segment it if your catalog is diverse, giving faster movers more of the budget. See product segmentation.
Your target ending inventory should come from the days of supply you want to hold at your service level, not a round number, so the buying budget stays tied to real demand.
The point is not precision to the dollar; it is a running answer to "how much more can I responsibly buy," which is exactly the question that prevents overbuying.
A few errors turn OTB from a guardrail into a false comfort:
Forgetting on-order. The single most common mistake: leaving committed but unreceived POs out of the calculation makes OTB overstate your room to buy, and you double-order. Every open PO has to count.
Planning at cost but thinking at retail (or vice versa). Mix the two and the number is meaningless. Pick cost or retail and apply it to every term.
Setting it and forgetting it. OTB is a living number; if sales run hot, your real buying room shrinks faster than a static plan shows. Recompute as demand moves.
Ignoring capacity. A positive OTB does not help if you have no FBA capacity to store the stock. Buying room and storage room are two separate limits, and you are bound by the tighter one.
Treating it as one pool. A single catalog-wide OTB can look healthy while your winners are starving and your slow movers are overfunded, which is why segmenting the budget matters.
Avoid these and OTB does its job; fall into them and it quietly gives you permission to overbuy.
Open to buy is the inventory budget still available to spend in a period: planned ending inventory plus sales plus markdowns, minus what you hold and what is on order. It ties every reorder to a plan and to your cash, which is why it is the guardrail against the most expensive inventory mistake, overbuying. Plan by period, track your on-order accurately, and recompute as demand moves. It is the buying half of merchandise financial planning and the cash-discipline layer over your restock planning.