How to Sell Your Goods on Consignment
Artists, artisans, vendors, crafters, home businesses and small manufacturers often find that selling their wares through traditional channels can be too difficult and too expensive. Selling goods on consignment, whether online or through a bricks-and-mortar storefront, can be a workable alternative that costs very little, and gives them an opportunity to obtain exposure for their work in several locations and sell goods through more than one dealer.
Consignment sales outlets might include antique stores, second hand clothing boutiques, art galleries, flea markets, craft stores, online malls and auction houses. A consignment store sells new, used and handmade items on consignment. The owner or maker of the goods (called the consignor) delivers the goods to the store (called the consignee), who sells the goods in exchange for receiving a commission from the sale. Depending on the nature of the goods, this could be a percentage of the sale price or a flat rate per item sold). The consignee has the right to return any unsold merchandise back to you, without any further obligation.
Benefits for the Consignor
The consignor is able to sell goods without incurring the major costs of operating a business. For artists, crafters and others who are operating on very small budgets, this is a major benefit. There are no rent payments, utilities, wages, or shipping costs to pay.
Selling your goods through a consignment store gives you a channel for advertising and exposing your products to a much wider market share than you may be able to afford on their own.
The store has a built-in customer base, so your goods will immediately be in front of the buying public.
If the consignment store is an online store or mall (such as eBay), the consigned products may be seen by hundreds of thousands of potential customers.
The consignee collects the money for all sales. Brick-and-mortar consignment stores require the full price to be paid before the goods leave the store. Commissions are deducted off the top by the consignee before paying the balance over to the consignor. Online malls charge their fees per transaction. The consignor is spared the necessity of collecting from customers, and the risk of bad debt. Someone else gets to run the “business end” of things. All you need to do is collect the net proceeds from the store and provide more products for sale.
Consignment sales free up more cash for supplies, marketing and advertising, and more time for creating more goods for sale.
The consignor can trade off the brand of the consignment outlet. A good reputation rubs off on any supplier whose goods are sold through the outlet.
A consignment arrangement can encourage a dealer to stock products that they might not normally carry because there is no risk or downside if the products don’t sell.
Benefits for the Consignee and the Customer
The consignee gets the benefit of having a wider variety of items and products to offer for sale than might otherwise be available from its regular suppliers.
In a brick-and-mortar shop the consignee decides how many products will be displayed, and where and how the displays will be configured. The dealer can devote as much space to the products as sales warrant.
The best part for the dealer is that there is no cash tied up in inventory.
The dealer has no risk, and can return any unsold items to the consignor at any time without any further obligation.
Customers learn that they can find those particular products in that specific shop, and if they enjoy the products, they will tell friends and family. And nothing creates better public exposure than word of mouth, which will drive additional traffic to the shop, resulting in better sales of the products.
The main benefit to customers is being able to find unusual and unique items conveniently.
How to Present Your Merchandise
If you’re placing antiques or used clothing or other items in consignment, it is vital that they be in good condition – what’s usually referred to as “gently used”. There must be no stains, tears, wrinkles, holes, dents, scratches, or worn patches. All items should be thoroughly cleaned. Look your item over carefully while imagining that you’re a customer who is interested in buying it. Do you see anything that might dissuade you from purchasing the item? If so, then repair it, mend it, clean it – whatever needs to be done to turn that item into a saleable product. If you’re selling art, photographs, or handmade goods, they should be presented in a manner that will make them appealing to a buyer. Photographs should be framed or mounted. All fabric and yarn items should be clean, pressed, blocked and properly edged and finished. Appearance is everything.
How to Find a Consignment Store That is Right for You
Every consignment store serves a particular market, so it's important to find the one that is right for your merchandise. Look at the other products that are sold there. If the customers who would buy those products are the same customers who would be likely to purchase your products, then they're a good fit for the store. Once you’ve found a good consignment store, ask them the following questions:
- How much commission does the store take on each sale?
- How long will an item be offered for sale before the store lowers the price or takes the item off the shelf?
- Who pays the delivery costs for large items?
- When / How often does the store pay you for items sold?
- How does the store advertise its products?
- Does the store feature products on its website?
- Are there any special conditions that apply?
Disadvantages of Consignment Selling
The consignee has no money invested and is not obligated to promote your products to its customers. You have no control over how your goods are shelved, displayed, marketed or promoted. A dealer may be more likely to give prime shelf space to inventory that is already paid for and which must be sold in order for the dealer to realize a return on its investment.
The consignor gets no money until the items are sold. Don’t count on consignment sales as a steady revenue stream, as it may take time before your products find a market.
You have no control over your goods while they’re in the consignee’s possession. They could be damaged, lost, stolen or destroyed. And because you retain title to the goods, you are at sole risk for any such loss or damage unless you have a written agreement in place under which the consignee agrees to assume part of the loss.
If the dealer’s gross margin on outright owned inventory is greater than the commission from the sale of consigned goods, the dealer will likely favor selling inventory items over consigned goods. You may have to offer the dealer a higher commission as an incentive.
Why You Need a Written Consignment Agreement
Having a signed written consignment agreement in place is much safer than a purely verbal arrangement. There are certain points which should be agreed to prior to placing your goods in a consignment store, the most important of which is the assumption of liability for loss or damage. The consignee is acting only as your agent. He or she only has possession of the merchandise, not title to it. So all risk of loss or damage remains with you. The consignee has no liability for loss or damage unless they agree in writing to assume part of the loss in the event of shoplifting or fire, water, smoke or other damage to the goods. In the absence of a written agreement, the consignor assumes the entire risk of loss. A written contract also allows the parties to negotiate how and where the merchandise will be displayed, and for how long. Good location is essential for good sales. The contract should also set out:
- the commission rate payable upon sale of the goods;
- the time periods or dates on which the seller will make payment for goods sold;
- storage of merchandise not on display (such as seasonal items);
- return of unsold and damaged goods to the consignor.
Consignment selling can be a cost-effective way of bringing your merchandise to market, but it does have its risks. Sit down with the consignee and work out the terms of your arrangement, then seal the deal with a formal Consignment Sale Agreement to safeguard the interests of both parties.