How Shopify merchants use Open-to-Buy (OTB)
Prevents overbuying during optimistic periods, keeping receipts aligned with financial constraints.
Formula
OTB = (Planned Sales + Planned Markdowns + Target End Inventory) - Start Inventory
Calculated at retail; multiply by cost factor to get the 'cost' budget.
What matters in practice
- Aligns inventory with cash-flow goals, not just demand.
- A category-level budget, not a per-SKU reorder point.
- Must be updated during strong sales deviations.
Why it matters
Common merchant pain points
- • OTB handled in complex, manual spreadsheets disconnected from Shopify data.
- • Mixing up 'retail value' and 'cost basis' in budget calculations.
Native Shopify limitations
- • Shopify does not implement a native OTB planning tool.
- • Reports show value but do not facilitate top-down budget constraints.
Benchmarks and reference points
Effective OTB planning aims for <5% deviation from plan.
OTB budgets often represent 10–20% of projected monthly revenue.
How to apply this in practice
Step 1
Set Sales Targets
Project your revenue for the next 3 months in Shopify.
Step 2
Account for Reductions
Add your expected markdowns and promotions to the inventory needed.
Step 3
Subtract Existing Stock
Take your current on-hand value away from the total needed to find your remaining budget.
Examples
New Store Launch
A brand uses OTB to ensure they don't blow their entire first-year budget on the initial opening stock.
Scaling a Category
A merchant sees the 'Shoes' category is trending and increases the OTB budget for that specific collection by 25%.
Frequently asked questions
Related resources
Related guides
- Shopify Inventory Forecasting Guide: From Gut Feel to Systematic Planning
A practical guide for Shopify brands to forecast inventory demand, combine lead times with sales velocity, and tie forecasts to real purchase orders and cash budgets. Includes formulas, Shopify report tips, and scaling advice.
- Inventory Carrying Cost Guide Shopify
Related calculators
Related glossary terms
- Reorder Point (ROP)
Reorder point is the inventory level at which a new purchase order should be placed so that replenishment arrives before existing stock is depleted.
- Safety Stock
Safety stock is the extra inventory held above expected demand to reduce the risk of stockouts caused by variability in demand or lead times.
- Inventory Turnover
Inventory turnover measures how many times a company sells and replaces its inventory over a given period, typically a year.