Open-to-Buy (OTB) for Apparel Brands: The Formula and a Monthly Planner

Open-to-buy (OTB) is the budget left for new purchases in a period after allowing for what you plan to sell, mark down and hold at the end of the period, and what is already on order. It is the bridge between a sales plan and a purchase plan. Without it, buying is driven by vendor visits and trade fairs, and stock builds up until cash runs out.

The formula

• Receipts needed = planned sales + planned markdowns + planned closing stock − opening stock.
• Open-to-buy = receipts needed − already on order.

Opening stock for each month is the previous month's closing stock. Work at cost or at retail value consistently — mixing them is a common error.

Why markdowns are in the formula

Markdowns reduce stock value just as sales do. If you plan ₹1.5 lakh of markdowns in a month, that value leaves stock and needs replacing if you want to keep the same closing stock. Leaving markdowns out understates the receipts you need — or, more often, hides the fact that a markdown-heavy season needs less new buying.

Setting planned closing stock

Closing stock should support next month's sales. A simple approach is a stock-to-sales ratio: closing stock = next month's planned sales × your target ratio. Set the ratio from your own history; festive months typically need higher stock going in and lower stock coming out.

Using the planner

1. Enter planned sales, markdowns and closing stock for each month from July to June (rename the months if your year differs).
2. Enter the opening stock for the first month.
3. Enter what is already on order for each month's delivery.
4. Read OTB for each month. A negative OTB means you are over-bought for that month — move deliveries, cancel, or plan more sales activity.

Seasonal patterns

In Indian apparel, OTB moves sharply around festivals and weddings. Plan receipts to arrive before the festival weeks (see the critical path in our Q3/Q4 festive workbook) and plan closing stock to fall after them. If you keep the same stock level all year, you will either miss festive sales or carry heavy stock into the slow months.

Keep some OTB open

Committing the whole season's OTB before it starts leaves no room for repeats on winners. Hold a share back for in-season buying, and update OTB monthly as actual sales replace plans.

OTB by category

The planner is one table for the business. Larger brands copy the sheet per category or per channel, then add them up — the logic is the same.

Worked example (illustrative)

For October, a brand plans sales of ₹30 lakh, markdowns of ₹1.5 lakh and closing stock of ₹45 lakh (ahead of Diwali). Opening stock is ₹42 lakh. Receipts needed = 30 + 1.5 + 45 − 42 = ₹34.5 lakh. With ₹20 lakh already on order for October delivery, OTB is ₹14.5 lakh. In November, planned closing stock drops after Diwali, so receipts needed fall sharply; if orders for November are already ₹25 lakh, OTB goes negative and the team moves some deliveries to December for the wedding season.

Common mistakes

• Mixing cost and retail values.
• Leaving markdowns out of the formula.
• Flat closing-stock targets that ignore the festival calendar.
• Not deducting orders already placed.
• Committing all of the season's OTB before it starts.

Linking OTB to cash

OTB is also a cash plan. Receipts this month are payments next month or the month after, depending on supplier terms. Put the receipts line into your 13-week cash flow forecast so the buying plan and the bank limit are discussed together.