Merchandise Financial Plan (MFP)
A Merchandise Financial Plan (MFP) is the top-level financial framework that governs an apparel brand's seasonal inventory investment — establishing sales targets, margin goals, and receipt budgets before any assortment or buy decisions are made.
A Merchandise Financial Plan (MFP) is the top-level financial framework that governs an apparel brand's seasonal inventory investment. It establishes planned sales, margin targets, inventory levels, and receipt budgets at the department or category level — before any assortment or buy decisions are made.
The MFP is the financial ceiling from which all planning decisions descend. The OTB is derived from it. The assortment plan allocates within it. The buy plan executes against it. A change to the MFP — a revised sales forecast, an adjusted margin target — cascades through every downstream planning workflow.
What a Merchandise Financial Plan contains
A complete MFP typically covers:
- Planned net sales by department and period (monthly or seasonal)
- Planned gross margin % by category
- Planned beginning and ending inventory by period
- Planned markdowns as a % of sales
- Planned receipt budget — derived from the OTB formula
- Turn targets — how many times inventory turns per season
These elements are interconnected. A change to the planned markdown rate changes the receipt budget. A revised sales forecast changes the required ending inventory. The MFP model must hold these relationships consistently.
MFP vs OTB
The MFP and OTB are related but distinct:
| | MFP | OTB | |---|---|---| | Scope | Full season, top-down | Period-level, dynamic | | Primary user | Finance / VP Merchandising | Planning team | | Updates when | Major forecast revisions | Sales occur, receipts land | | Output | Financial targets by category | Available buying capacity |
The MFP sets the targets. The OTB tracks actual performance against those targets and translates the variance into remaining buying capacity.
Common MFP failures in apparel
Set too high: Sales targets are optimistic, driving receipt budgets that exceed realistic demand. End-of-season markdown exposure follows.
Not updated mid-season: An MFP that isn't revised when early-season sell-through deviates from plan leads to buy decisions made against an out-of-date financial foundation.
Category-level MFP without channel split: Brands selling DTC and wholesale need department-level MFP targets broken out by channel. A single total doesn't distinguish between DTC and wholesale economics.
In RetailNorthstar, the MFP targets — sales plan, margin %, receipt budget — are set at the planning stage and remain live throughout the season. OTB updates against these targets automatically as actuals come in.
RetailNorthstar connects MFP targets to the OTB model so that the financial plan and the planning workflow remain aligned throughout the season — not just at the start of it.