What is Open-to-Buy Formula?

Definition

Open-to-Buy Formula calculates how much additional inventory a retailer can purchase during a planning period while staying aligned with planned sales, markdowns, inventory levels, and merchandise already on order. It helps buyers control inventory investment and avoid purchasing beyond the amount supported by the merchandise plan.

Open-to-buy is primarily a retail planning measure. It connects merchandising expectations with purchasing decisions by showing the remaining buying capacity for a period, category, department, or product group.

Table of Contents

Open-to-Buy Formula and Calculation

The standard formula is Open-to-Buy = Planned Sales + Planned Markdown + Planned Ending Inventory − Beginning Inventory − On-Order Inventory.

For example, suppose a retailer plans $120,000 in sales and $10,000 in markdowns for the month. Planned ending inventory is $80,000, beginning inventory is $100,000, and $40,000 of merchandise is already on order.

Open-to-Buy = $120,000 + $10,000 + $80,000 − $100,000 − $40,000 = $70,000.

The resulting $70,000 represents the additional merchandise purchasing capacity under those assumptions. If expected sales, markdowns, inventory targets, or outstanding orders change, the open-to-buy amount should be recalculated.

What Each Formula Component Means

Each input represents a different part of the merchandise plan. Planned sales estimate the inventory value expected to leave the business through customer purchases, while planned markdowns account for reductions in expected selling value.

  • Planned sales: Expected merchandise sales during the planning period.
  • Planned markdowns: Expected reductions in merchandise selling value from planned price reductions.
  • Planned ending inventory: Target inventory value to carry into the next period.
  • Beginning inventory: Inventory value available at the start of the period.
  • On-order inventory: Merchandise already committed through outstanding purchasing activity.

The formula therefore balances expected inventory outflows and the desired ending position against inventory already available or committed.

How Open-to-Buy Supports Procurement

Open-to-buy translates merchandise planning into a purchasing boundary. Buyers can compare available purchasing capacity with proposed purchases before creating or approving additional orders. A purchase order represents an actual supplier commitment, so its value should be reflected in the open-to-buy calculation when the merchandise becomes part of on-order inventory.

The metric also connects to broader procurement controls because purchasing decisions should consider planned demand, existing commitments, approvals, and available spending capacity. The Buy Side Process provides broader context for how purchasing activity moves from requirements and sourcing through transaction execution.

Organizations evaluating purchasing technology can also compare procurement cycle times, compliance, and cost measures alongside merchandise planning. How Companies Measure ROI from Procurement Software 2026 provides a framework for connecting procurement activity with measurable business outcomes.

Open-to-Buy in ERP and Inventory Planning

Open-to-buy calculations become more useful when merchandise planning connects with an ERP or inventory system. Beginning inventory, purchase commitments, sales activity, and inventory targets can then be drawn from operational records rather than maintained as disconnected planning figures.

When organizations evaluate whether to expand or replace an ERP environment, When to Move from Free ERP to Paid provides relevant context around ERP integration, migration, and the extension of finance workflows. For purchasing teams, an Open Source PO System: Options, Use Cases & Deployment can also be considered when examining purchase-order workflows, sourcing, approvals, and procurement controls.

Open-to-buy is different from measures that calculate financing costs or cash movements, but the concepts can interact in merchandise planning. An Interest Formula can help calculate financing costs associated with borrowing, while open-to-buy focuses on planned merchandise purchasing capacity.

Because inventory purchases affect the timing of supplier payments and working capital, an open-to-buy plan can also be considered alongside a Cash Flow Formula. A retailer may have sufficient merchandise buying capacity under its inventory plan while still needing to consider when purchases will require cash payments.

Best Practices for Using Open-to-Buy

Effective open-to-buy planning depends on timely inputs and consistent assumptions. Retailers should update the calculation when sales forecasts change, markdown plans are revised, inventory targets move, or new purchase commitments are created.

  • Set open-to-buy targets by meaningful categories, departments, or selling periods.
  • Update on-order inventory whenever purchase commitments change.
  • Compare planned sales with actual sales to identify forecast changes.
  • Incorporate approved markdown plans into merchandise calculations.
  • Review ending-inventory targets as seasonal demand and assortment requirements change.
  • Coordinate open-to-buy decisions with purchasing approvals and working-capital planning.

Summary

The Open-to-Buy Formula determines additional merchandise purchasing capacity by combining planned sales, markdowns, and ending inventory targets, then subtracting beginning inventory and merchandise already on order. Used consistently, it helps retailers align purchasing decisions with inventory plans, procurement controls, and financial planning.