How to use the open to buy calculator
- Enter your planned sales, planned markdowns and planned end of period stock, all at retail prices.
- Enter the stock on hand now at retail and what is already on order at retail.
- Enter your initial markup as a percent of retail so the page can convert the answer to cost.
- Read the open to buy at retail and at cost, or the amount by which you are over-bought.
Formula
stock needed = planned sales + planned markdowns + planned end of period stock
stock available = stock on hand + already on order
open to buy (retail) = stock needed - stock available
open to buy (cost) = open to buy (retail) x (1 - initial markup / 100)
A negative result means you hold or have ordered more than the plan needs. The same identity can be read as: stock on hand + purchases - sales - markdowns = end of period stock.
A month with a stock build
A shop plans $120,000 of sales and $8,000 of markdowns in the month, and wants $150,000 of stock at the end. It holds $140,000 now and has $20,000 on order, all at retail. Stock needed is $278,000 and stock available is $160,000, so the open to buy is $118,000 at retail. At an initial markup of 50 percent, that is $59,000 at cost.
Now take a slower month: $80,000 of sales, $5,000 of markdowns and $100,000 of ending stock. With $120,000 on hand and $80,000 on order, stock needed is $185,000 and stock available is $200,000. The shop is over-bought by $15,000 at retail, or $7,500 at cost, and should hold back new orders.
Why plan in retail dollars
Sales, markdowns and stock are all valued at the prices customers see, so the plan lines up with the sales you track every day. Purchases are paid for at cost, which is why the last step converts the retail figure to cost with your initial markup. If your markup differs by category, run the calculator once for each.
Open to buy is a limit, not a target. A buyer may spend less, and should leave room for late changes in sales and for fast sellers.
Checking the plan
A plan is only useful if the sales target is realistic. Compare it with how fast stock is moving using the Sell-Through Rate Calculator and the Inventory Turnover Calculator. When an item needs a standing re-order rule, use the Reorder Point Calculator.
Assumptions and limits
- All stock, sales and markdown figures are at retail prices for the same period.
- Orders on order will arrive within the period and are counted in full.
- Returns, shrink and timing of deliveries are not modeled.
- The initial markup is one percent of retail for the whole purchase.
- The sales, stock and markup shown when the page opens are examples.
Frequently asked questions
What is the difference between markup on retail and markup on cost?
Here the markup is a share of the retail price, so a 50 percent markup means cost is half of retail. Markup on cost would divide by cost instead and give a larger number for the same prices.
Why can open to buy be negative?
If stock on hand and on order already exceed what the plan needs, there is no room to buy. The page shows the excess as over-bought, which is a prompt to cancel or delay orders, or to raise the sales plan.
Should markdowns be added or subtracted?
Added. Markdowns lower the retail value of stock without a sale, so you need more purchases to end with the stock you planned.
Can I use this for a season instead of a month?
Yes. Enter the sales, markdowns and stock for the whole season. The identity holds for any period, as long as all the figures cover the same one.