Open to Buy (OTB) is a budgeting tool for retailers to plan how much they can spend on new stock during a specific period. It ensures the right inventory levels to meet demand without overspending or overstocking.
OTB Formula
OTB = Planned Sales + Planned EOM Inventory – Current Inventory – On-Order Inventory
Example in ₹
For March:
Planned Sales: ₹20,00,000
Planned EOM Inventory: ₹12,00,000
Current Inventory: ₹8,00,000
On-Order Inventory: ₹5,00,000
OTB = 20,00,000 + 12,00,000 – 8,00,000 – 5,00,000 = ₹19,00,000
The retailer can spend ₹19,00,000 on new stock.
Why OTB is Important
Prevents overstocking or understocking.
Keeps cash flow healthy.
Maximizes profits by reducing markdowns.
OTB helps retailers balance inventory and stay profitable.
