Omaha, NE—Creating an open-to-buy isn’t difficult, but it is time consuming. It is also essential. A monthly open-to-buy acts as the foundation for disciplined purchasing. Whether you're at a trade show or buying directly from your vendors, it's essential to work from this solid base.
Step one. One of the most important parts of an open-to-buy is the projected sales for the month by department. Remove all repair and services revenue from the equation. Also remove hold-buying revenue. Ask yourself: What did I achieve in sales, average sale, units sold and gross margin this year? Calculate what you WANT to achieve (either increase or decrease) for each of these metrics.
Step two. With total sales objectives for next year, populate a sales plan or construct a simple Excel spreadsheet and break it down by month, based on the percentage sold last year.
Step three. Convert monthly sales objective into cost using gross margin objective.
Step four. Allocate the sales at cost to each department (or collections/programs if that is how you analyze your inventory), again based on the sales distribution of last year. This is your opportunity to “massage” the numbers. Do you want to grow a department? Do you need to pull down a loose diamond department because of special-order diamonds?
Step five. The second number to input into your spreadsheet is inventory on-hand, at cost, at the end of the prior month. Including consignments and memo is optional, but recommended. Your consignments should be working for you, not just taking up space.
Step six. Run an on-order report at cost by department and add to your on-hand number — this is your total stock.
Step seven. The difference between your projected cost of sales and your total stock is your preliminary open-to-buy.
Step eight. There are deductions from the preliminary open-to-buy numbers:
And some additions to preliminary open-to-buy numbers:
Congratulations! You now have your actual open-to-buy for new purchases. If you would like a customized Open-To-Buy Plan put together for your business, before you head into show season please contact us. We can help!
The Edge Retail Academy provides customized strategies for retailers and vendors to increase profits, optimize growth, reduce debt, create profitable inventory solutions, build effective teams and enhance brand loyalty and profitability. The Academy is committed to helping jewelry businesses improve their bottom line while reducing uncertainty and stress. Edge Retail Academy software and their business advisors provide real world knowledge and advice on a “no-contract” basis. (877) 569-8657, ext. 1, or www.edgeretailacademy.com