Open-to-Buy Planning for DTC Brands: How Much Inventory Can You Afford to Order?

The bestseller needs replenishing. The supplier wants a deposit. The warehouse is already full of products that are moving too slowly.

The founder opens the bank account and decides whether the next order feels affordable.

That decision needs two different answers: how much inventory the business needs, and when it can fund the commitments required to obtain it. Open-to-buy planning helps with the first. A cash schedule completes the second.

Open to buy, or OTB, is the remaining inventory purchasing allowance for a defined period after accounting for planned demand, stock targets, opening inventory and existing commitments. It gives a buying team a limit to work within. It does not choose the right size curve or guarantee that money will be available on the deposit date.

This guide shows a cost-based approach suitable for a DTC management plan, with an editable example you can use to structure the conversation between buying, operations and finance.

What an open-to-buy plan actually controls

An OTB plan connects the sales plan with the amount of inventory you intend to hold at the end of a period. It then accounts for what you already own and what is already on the way.

The result is the additional receipt value needed to support that plan. Purchasing must translate those receipts into orders early enough to meet production and transport lead times.

This distinction matters. A January receipt may require an October purchase order and a November deposit. Calling the January allowance a January spending budget would confuse the stock requirement with the cash timing.

Inventory Planner's documentation distinguishes plans in retail value, cost and units. Choose one basis before calculating. Mixing retail revenue with inventory valued at purchase cost will produce a number that looks precise but has no coherent meaning.

For a founder managing capital tied up in stock, a cost-based view can be useful. Use the same cost definition across sales consumption, opening stock, target closing stock and incoming orders.

A cost-based open-to-buy formula

For the simplified model used here:

Required receipts at cost = planned cost of units sold + target closing inventory at cost − opening inventory at cost.

Remaining OTB = required receipts at cost − confirmed receipts already committed for the period.

The example assumes no separate stock adjustments, transfers, returns or write-offs. Add those movements explicitly when they are relevant, using the underlying stock roll-forward. Do not force them into a sales line to make the total balance.

Keep planned cost of units sold separate from revenue. If your model uses landed cost for stock, it should also use that basis for the units expected to leave stock. If purchasing commitments exclude freight and import charges, bridge them onto the same basis before subtracting them.

Worked example: a brand planning January inventory

These are hypothetical USD figures for a cost-based merchandise plan, not client results or an accounting prescription.

Required receipts are $180,000 + $360,000 − $300,000 = $240,000.

After subtracting $150,000 already committed, remaining OTB is $90,000.

If those additional receipts are approved and arrive on time, the stock roll-forward becomes:

$300,000 opening stock + $150,000 committed receipts + $90,000 additional receipts − $180,000 consumption = $360,000 closing stock.

The $90,000 is permission to investigate additional purchasing within the plan. It is not an instruction to spend the entire amount, and it is not proof that every category needs more stock.

Why markdowns can cause confusion

Retail-value OTB formulas often include planned markdowns because markdowns reduce the retail value assigned to inventory. Shopify's OTB guide discusses that retail planning convention.

Do not automatically add retail markdown dollars to a cost-based inventory model. A selling-price reduction does not, by itself, remove the original cost of units from stock. It changes the commercial outcome. A write-down, stock loss or disposal is a different event and needs the appropriate treatment.

In practice, maintain a clear bridge between the units you expect to sell, their expected net selling prices and the inventory cost consumed. That lets finance see what a clearance promotion does to both cash generation and margin without distorting the purchase allowance.

Document the model's treatment of returns as well. Returned goods that become saleable stock again have a different inventory effect from damaged returns that cannot be resold.

Set the closing-stock target before trusting the answer

OTB is only as useful as the stock target behind it. If the target is inflated, the model can authorise overbuying with perfect arithmetic.

Build the target around future demand, replenishment lead time, supplier reliability and the service level you need. Consider what happens immediately after the planning period. A product entering its peak season may justify a different position from one about to leave the range.

Use forward demand rather than assuming last month's sales will repeat. Keep seasonality, planned launches and known promotions visible. For a fast-growing brand, distinguish a supported forecast from a sales target that still depends on unproven advertising performance.

Our inventory forecasting guide provides a starting point for building that demand view. The OTB plan then applies a buying constraint to it.

Avoid a single cover target across the whole catalogue. A replenishable core item, a seasonal colour and a new launch have different uncertainty and replenishment options. Group them sensibly before deciding how much stock the business should hold.

Build category plans before approving SKU orders

A positive total OTB can hide a badly unbalanced range. One category may need replenishment while another has enough slow stock to fund several months of purchases on paper.

Start with commercially meaningful groups: core products, seasonal products, new launches, or categories with distinct lead times and supplier constraints. Use a consistent approach and keep the number of groups manageable.

Within each category, use SKU-level planning to determine the actual order. Review size and colour demand, availability, open purchase orders, MOQs and supplier capacity. Category-level budget does not tell you whether to buy more black mediums or fewer navy extra-larges.

Do not net unavailable stock against a live demand requirement without examining it. Damaged, restricted or obsolete units may still appear in an inventory valuation, but they cannot serve the same purpose as saleable stock. Show the issue and reconcile the difference with finance rather than silently deleting those units from the model.

The approval should identify what will be ordered, why, when it will arrive and what happens if demand is lower than expected.

Add a cash schedule before issuing the purchase order

Suppose the $90,000 additional January receipts in the example are entirely supplier merchandise cost, with a 30% deposit payable in November and the balance in December. For this cash illustration only, assume no additional freight, taxes or fees.

The new order requires $27,000 in November and $63,000 in December. January is the receipt month, not the payment month.

Then add the payments on existing orders. A business can have room within its OTB while already facing a large balance payment on stock committed months earlier.

For a live plan, include the actual payment terms for each order and separate freight, import charges and other cash outflows by expected payment date. Incorporate payroll, marketing and operating commitments in the wider cash forecast. Do not assume a purchase allowance means spare liquidity.

This is also where you assess supplier proposals. A price reduction for paying in full earlier may improve unit margin while weakening the cash position. The correct decision depends on the size of the saving, the cash timing and the supply risk.

What to do when open to buy turns negative

Negative OTB means opening stock and committed receipts exceed the requirement under the current plan. It is a review signal, not an automatic cancellation instruction.

If the example's confirmed January receipts rose from $150,000 to $270,000, remaining OTB would become negative $30,000. With unchanged assumptions, projected closing stock would be $390,000, which is $30,000 above the target.

First confirm that the inputs are correct. Is an order counted twice? Has its receipt date moved? Is demand understated because the product was out of stock during the historical period?

If the excess is real, assess options: defer a receipt, reduce a flexible order, redirect stock, alter the launch plan or agree a deliberate temporary increase in stock. Review the commercial terms before assuming an order can be changed without cost.

Record the decision and its financial effect. Increasing the target solely to remove the negative number hides the problem instead of solving it.

Establish a monthly plan and a weekly exception review

Run the formal purchasing plan monthly, aligned with commercial forecasts and finance. Between cycles, review material changes that could alter commitments: a promotion outperforming, a supplier delay, a launch cancellation or a large wholesale order.

Keep one current version with a date and owner. Preserve the previous approved plan so the team can explain changes. Separate approved orders from proposed orders; otherwise, two buyers can unknowingly spend the same allowance.

Use a decision log containing the category, amount, receipt period, payment timing, approver and reason. When the plan changes, update the downstream purchase orders and cash forecast rather than only editing the presentation.

This process should reduce unnecessary debate. The team still applies judgment, but it starts from a shared view of stock, demand and existing commitments.

Download the open-to-buy template

Download the Onflair open-to-buy workbook. It includes the cost-based stock roll-forward, remaining purchase allowance and the separate deposit example. Inputs are editable and the calculations update automatically.

Start with one category and one receipt month. Reconcile it to the actual stock and purchase-order records before extending it across the business. For a wider review of the underlying planning process, see our supply chain and operations audit.

Frequently asked questions

Is open to buy the same as a reorder point?

No. A reorder point helps identify when a SKU needs replenishment. OTB sets a purchasing allowance for a period or category. You need to reconcile both: a product can need stock while the current buying budget or cash position requires a trade-off.

Should we plan in cost, retail value or units?

Use the basis that suits the decision and keep it consistent. Cost supports purchasing and capital discussions; retail value supports merchandising plans; units support physical demand and capacity. Build explicit conversions when moving between them.

Can we use OTB for pre-orders?

Yes, but separate customer commitments, supplier commitments and stock that is available now. Include cancellation assumptions and the actual cash timing. Pre-order revenue does not remove production or fulfilment risk.

Does a negative number mean we must stop all buying?

No. It means the current plan requires investigation. A shortage in an important SKU may still need action while excess sits elsewhere. Resolve the stock mix and cash implications rather than imposing a blanket rule.

Make purchasing a decision the whole business can support

Onflair helps consumer brands build planning processes that connect inventory, suppliers, margin and cash. If buying still depends on whoever checks the bank account last, talk to us about your operation.

The model and examples are Onflair's recommended management approach, with hypothetical figures. Linked sources explain planning conventions and software terminology. Author: Anthony Mellor, Onflair.