The holiday season is when an independent gift shop earns a big share of its year. It's also when buying mistakes get expensive. Order too little and you miss sales in December. Order too much and January starts with a back room full of inventory and no cash for the spring pieces your customers want.
Open-to-buy (OTB) is the simple budgeting tool that keeps those two risks in balance. This guide explains what open-to-buy means in retail, walks through the formula with a holiday example, and shows how to keep money free for reorders into Q1. You can run your own numbers in our free Open-to-Buy Calculator.
All dollar figures below are examples for illustration only.
What is open-to-buy in retail?
Open-to-buy is the amount of new inventory you can still order for a period, usually a month, without going over your inventory plan. Think of it as a checking-account balance for merchandise. You start with a plan, subtract what you already have and what's already on order, and what's left is what you're "open" to buy.
It answers one practical question: "How much can I order for next month without overstocking?"
The open-to-buy formula
The standard monthly formula, at retail value:
OTB = Planned sales + Planned markdowns + Planned end-of-month inventory − Beginning-of-month inventory − Inventory already on order
What each piece means:
- Planned sales: what you expect to sell this month, at retail.
- Planned markdowns: the dollars you expect to give up to discounts and promotions.
- Planned end-of-month (EOM) inventory: what you want left on hand when the month closes. This is usually next month's opening stock.
- Beginning-of-month (BOM) inventory: what you have on hand right now, at retail.
- On order: merchandise you've ordered that hasn't arrived yet.
Worked example: December for a small gift shop
Here's how the math might look for an example store planning December:
| Line | Example amount (retail $) |
|---|---|
| Planned sales | $20,000 |
| + Planned markdowns | $1,500 |
| + Planned EOM inventory | $18,000 |
| − BOM inventory | $25,000 |
| − On order | $4,000 |
| = Open-to-buy | $10,500 |
The store can bring in about $10,500 of additional merchandise, at retail value, for December and stay on plan.
Convert open-to-buy to cost
Your wholesale orders are placed at cost, so convert the retail OTB:
OTB at cost = OTB at retail × (1 − planned margin %)
Example: If the store plans a 50% initial margin (keystone pricing):
$10,500 × (1 − 0.50) = $5,250 at cost
That's the budget to spend with suppliers. If you need a refresher on margin vs. markup, the Retail Markup Calculator shows both side by side, and our guide to calculating retail price with markup, margin and keystone walks through examples.
Then plan January differently
January usually looks very different from December: lower sales, more markdowns, and a leaner inventory target. An example plan:
| Line | Example amount (retail $) |
|---|---|
| Planned sales | $8,000 |
| + Planned markdowns | $2,000 |
| + Planned EOM inventory | $16,000 |
| − BOM inventory (December's EOM) | $18,000 |
| − On order | $0 |
| = Open-to-buy | $8,000 |
Notice the chain: December's planned ending inventory becomes January's beginning inventory. When you plan several months at once, a mistake in one month carries into the next. That's why it's worth reviewing OTB every month, not once a season.
Five steps to build a holiday-to-Q1 OTB plan
- Start from your own sales history. Pull last year's monthly sales from your POS by category. Adjust for anything that's changed, like a new category, a longer holiday schedule, or a remodel.
- Set ending-inventory targets. Decide how much stock each month needs to look full without crowding the floor. If you know your space productivity, the Sales per Square Foot Calculator can help you decide which categories have earned more room.
- Plan markdowns on purpose. Holiday-specific items need an exit plan. Budget the markdown dollars up front so they don't surprise you in January.
- Track on-order weekly. Every confirmed order reduces open-to-buy. Keep a simple list of open orders with expected arrival dates.
- Hold some budget back for reorders. Don't spend all of your OTB up front. Keeping a portion uncommitted lets you reorder what's actually selling. The Reorder Point Calculator helps you decide when to restock winners.
Categories that bridge holiday and Q1
The best open-to-buy plans favor merchandise that sells through December and still makes sense in January. In home and gift stores, that often means pieces that are useful or decorative year-round, not tied to one holiday:
- Cast iron wall hooks for entries, mudrooms, and kitchens
- Bottle openers that work as gifts and as everyday bar decor
- Kitchen and bath accents
- Garden accessories that move into spring displays
Keep the truly seasonal pieces, like Christmas items, to a planned share of your budget so January markdowns stay manageable.
Frequently asked questions
What is open-to-buy in retail?
It's the dollar amount of merchandise you can still order for a period without exceeding your inventory plan. It equals planned sales plus planned markdowns plus planned ending inventory, minus beginning inventory and what's already on order.
What is the open-to-buy formula?
OTB = Planned sales + Planned markdowns + Planned EOM inventory − BOM inventory − On order. Calculate it at retail value, then convert to cost for ordering.
How do I calculate open-to-buy at cost?
Multiply your retail OTB by (1 − your planned margin). Example: $10,500 × 0.50 = $5,250 at a 50% margin.
What if my open-to-buy is negative?
You're over-inventoried for that month. Pause new orders, push back deliveries where suppliers allow it, and consider promotions to bring stock back in line.
How often should I update open-to-buy?
Monthly at minimum, and weekly during the holiday season. Update it whenever actual sales or deliveries move away from the plan.
Plan your buy, then shop the assortment
Run your numbers in the Open-to-Buy Calculator, then put your budget to work. Retailers can explore cast iron and metal home and garden decor in our Trade Showroom, review the opening-order buyback guarantee, and apply for a wholesale account. Comparing suppliers? Read what smart retailers look for in wholesale metal decor suppliers.