Selling handmade products and other small items through retailers has long been a great way for individuals and small businesses to make money. One option that is particularly convenient and potentially profitable is selling through a consignment shop.
In this article, we will discuss consignment stores, go over consignment agreements, and explain whether or not it makes sense for you to explore this business model.
What Is a Consignment Shop?
Before delving into how consignment works, we must first define what consignment shops actually are. In simple terms, these are shops that sell items on behalf of the owners. The products sold by these shops are not limited to a single category and can include everything from shoes and clothes to furniture and musical instruments. The vast majority of consignment shops focus on handmade items that are owned by local small businesses and makers.
The consignment model offers many benefits to shop owners (consignees). The obvious one is the simple fact that consignment selling allows them to sell products at a profit without having to tap into their own resources to build inventory. From the consignor's perspective, a consignment shop provides a great outlet for reaching a ready-made customer base that is interested in what they are offering.
How Consignment Works
Selling your products on consignment involves striking a consignment deal with a shop owner. This is a fairly straightforward process that requires both parties to clearly define the terms of the consignment contract and agree on key details, such as pricing and the period of time during which the products will remain in the store.
Here is an overview of some of the points that should be addressed by both parties:
The Consignment Percentage
The first thing that the consignor and consignee should agree on is the percentage that each party is entitled to from the consignment sales. While rates will vary from one consignment agreement to another, the industry average is around 60% for the product owner/maker and 40% for the shop owner.
Keep in mind that it is possible for the consignor to negotiate even more favorable terms than those outlined above. If you can provide proof of strong sales and high-profit margins, you will be in a good position to dictate the terms of the deal and negotiate a higher percentage.
The Sale Price of the Items
The next thing that should be agreed upon is the price that your products will sell for. Generally speaking, consignment pricing is the same as what you would charge when selling your products at a craft show or to retailers as a wholesaler. The only difference between these various approaches is your percentage of the sale and your profit margins.
Product Tagging
This is a crucial point that should be clarified before sealing the agreement. In some cases, the shop owner is the one responsible for putting price tags on the products whereas other consignment agreements require the consignor to handle this task. Agreeing on this beforehand will help avoid confusion when the items are ready for shipping.
How Long the Products Will Remain in the Store
The consignee and consignor should determine the length of time the items will stay in the store. As you would expect, highly frequented shops that move a lot of units will generally impose a shorter period, whereas smaller shops can often accommodate longer periods of time. Your product's potential and past sales will also help you negotiate an ideal length of time that allows you to sell all of your products.
The Volume of Products Shipped to the Shop
Before signing a consignment agreement, you need to set the number of products that you will be shipping to the shop throughout the agreement period. This is ultimately determined by your production output and the shop's inventory capacity.
Shipping Responsibilities
A common point of confusion when selling on consignment is figuring out who is responsible for the various shipping tasks that are associated with this business model. First, the parties should agree on who is responsible for shipping the products to the store. Next, you'll want to decide on which party should handle the shipping of unsold consigned goods.
Payment Terms
One of the most important terms that should be agreed upon is the details concerning the payment. Make sure to specify a mode of payment and clearly outline when you are expecting to be paid for sold items.
Termination Terms
In most cases, one or both parties may wish to terminate the consignment agreement for a multitude of reasons. To prepare for this scenario, there should be a set of termination terms in place to protect each party's interests. Avoid signing anything that involves termination fees and be sure to negotiate terms that work for you and your business.
How to Find a Consignment Shop in Your Area
Now that you have a basic understanding of how consignment works, it is time to start looking for consignment shops in your area. Here are some options you should consider:
- Google: The obvious way to find consignment shops in your area is to simply use Google. A local search that incorporates location keywords should reveal dozens of shops near you.
- Yellow Pages: While this may seem like an outdated approach, it is worth noting that the yellow pages are still a viable option for finding all sorts of businesses. This is especially the case when it comes to brick-and-mortar businesses like consignment shops and thrift shops.
- Facebook: A lot of consignment shops promote their products on Facebook. Besides promoting their own page, these businesses are also active in groups that discuss handmade products and other artisanal items.
- Craft shows: Attending craft shows in your area is a great way to come into contact with a wide range of local retailers. Moreover, these shows allow you to network with other makers and small businesses in your niche, which in turn could help you find consignment shops to work with and improve the way you operate your business.
Is Consignment Selling a Good Idea for Your Business?
Consignment selling has its limitations and is definitely not for everyone. With that being said, certain businesses can benefit tremendously from this business model. Due to the low inventory of most consignment shops, your consigned products won't be competing with a large selection of merchandise. This is why these shops are a great option if you only have a few products to sell. Another situation in which you should consider selling on consignment is when you are releasing a limited number of high-dollar items.
Regardless of the type of products you are selling, the key to a profitable consignment sale is to be aware of your profit margins and have a clear idea of how the logistics of this business model can affect your bottom line.
Let Skynova Help You Stay on Top of Your Business Finances
Whether it is online or through a brick-and-mortar retailer, successfully selling products requires a full-time commitment on your part. This means that your focus should always be on managing and improving the way you offer your products to the market.
Skynova helps you achieve this by taking some of the tedious and time-consuming business management tasks off of your hands. Thanks to Skynova's accounting software, business owners will have the ability to track their income, expenses, and sales tax in a streamlined and much more efficient manner.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a business advisor to ensure that you are getting the necessary professional guidance.