1. Understanding How The Buyer Makes Purchasing Decisions
Open To Buy
This should be done after the pricing unit.
Understanding How The Buyer Makes Purchasing Decisions

2. What is Open To Buy???
Amount of money a business has left for purchasing goods after all other expenses have been considered.
Does anyone have an idea about what “open to buy” is? Share responses.
Show definition.

3. Calculating Open to Buy – Step 1
P - (GR + GO) = OTB
P = Planned Purchases = $ 17,750
GR = Goods Received = $ 6,500
GO = Goods Ordered = $ 3,300
17,750 – ( 6, , 000) = OTB
17,750 – 9,500 = 8,250
OTB at Retail Value = 8,250
Calculating open-to-buy is a 3-step process. Let’s look at Step #1. Show formula.
P = the dollar amount of planned purchases – the amount that was determined needed for the next month or next season, however the buyer sets up the buying schedule.
GR = the goods that have already been received on that order
GO = the goods that have been ordered, but not received yet
Exercise: using the formula and figures given, calculate OTB. Allow students time. Then show the results.
Note that for this step the buyer is using RETAIL value of the goods (not the COST). So the buyer knows from this calculation that he/she can purchase $8,250 worth of goods at RETAIL price.
But remember, when purchasing goods for resale, a buyer deals in the COST of the merchandise, which takes us to Step #2. SHOW NEXT SLIDE.

4. Calculating Open to Buy – Step 2
Once you find the OTB at Retail Value you must then find the OTB at Cost Value
100% - Mark Up % = % Cost of Goods
100 – = 55
55% = Cost of Goods
Now that the buyer knows the RETAIL value of the goods left to order, he/she must find the COST equivalent.
Let’s look at that formula. Show next bullet.
If the percent markup on retail is 45%, what would be the percent cost of goods? Allow students time to calculate.
Share responses. Show next bullets.
Now the buyer knows how much in COST they may purchase. But he’s not done yet. Let’s look at the final step.
Show next slide.

5. Calculating Open to Buy – Step 3
Cost of Goods % x OTB(Retail) = OTB(Cost)
.55 x 8,250 =
OTB at Cost =
The final step is to convert the OTB retail amount to the OTB cost amount.
Using the figures we have calculated, see if you can calculate the OTB Cost amount. Allow students to calculate.
Show next bullets.

6. Why use Open To Buy at Cost?
The Open To Buy at Cost figure represents the actual amount of money budgeted for making purchases.
If the buyer uses the Open To Buy at Retail figure they will not only be spending any profit they hope to make, but they will also be spending the money that covers the cost of doing business.
Why do you think it’s important that the buyer uses COST figures when calculating OTB? Share responses.
Show bullets, discuss.

7. Why Use Open To Buy at Cost?
If the Buyer does not work Steps 1, 2 and 3 when calculating Open To Buy they will create a serious financial problem for their company.
When you are asked to calculate Open To Buy you are being asked to find the “True” Open To Buy figure which means that you must work Steps 1, 2, and 3 to get the correct amount.
Here are some other reasons to make sure that OTB is figured at COST instead of retail.

8. Let’s Practice………
You are to calculate the Open To Buy given the following information:
Planned Purchases $ 33,886
Goods Received $ 5,356
Goods Ordered $ 14,377
Mark Up %
Let’s do a practice problem. Calculate OTB using the formulas you’ve learned and these figures. Remember to follow all 3 steps.
Allow students to calculate.

9. The Answer…….. 33,886 - (5,356 + 14,377) = OTB/Retail
Step 1
P-(Goods Received + Goods Ordered) = OTB
33,886 - (5, ,377) = OTB/Retail
33,886 – 19,733 = 14,153
Step 2
100% - Mark Up % = Cost %
100% - 47% = 53%
Step 3
OTB/Retail x Cost % = OTB/Cost
14,153 x =
The Open to Buy
Let’s take the calculations one step at a time.
What did you get for step 1? After students share responses, show bullets. What does this represent? (OTB at the RETAIL value).
What did you get for step 2? After students share responses, show bullets. What does this represent? (percent of the retail price that COST represents).
What did you get for step 3? After students share responses, show bullets. What does this represent? (amount of goods the buyer may purchase AT COST).
Therefore, the buyer knows that he/she can purchase $ worth of goods AT COST.