Consignment Pros and Cons

You’ve been selling your products and goods at Farmer’s Markets and Craft Shows in your area. Maybe you’ve even been travelling a bit to other cities and maybe states. Somebody comes up to you and asks if you would be willing to let them sell your products in their store!  Success! You’ve been discovered!

Yes, you’ve been discovered. Your products or goods are worthy of someone’s attention. So much so, they want to put your stuff on their shelves and sell it for you! You no longer have to set up your booth, sit in the hot sun all day, tear it down and drive it all home any more.

If only it worked that way.

For some, it may work exactly like that. However, there are some things you MUST know before you enter into a consignment agreement.

What is Consignment?

Consignment is essentially entering into an agreement with someone that you give them your products to sell on their terms. Notice that the keyword here is “give”. Yes, you give them your products. If and when they sell, they will send you a percentage of the sale price sometime later. This is normally 30-60 days after the sale.

What Percentage Will I Receive?

The amount of money you receive once they sell your products is highly dependent on the agreement. Make sure you agree upon this in writing prior to sending them any products. Let me state this another way:

MAKE SURE YOU AGREE ON THE PERCENTAGE IN WRITING PRIOR TO SENDING THEM ANY PRODUCTS!!!!

Most consignment agreements are generally 50/50. You receive 50% of the amount of the sale or agreed price (more on this soon). When they sell your product, they will send you half of the amount of the sale after the sale clears.

How Is The Price Set?

Great question. This is one that is often overlooked.

When you enter into an agreement with a consignor, part of what you should be expected to send them is a list of products that you are giving to them along with the suggested retail price (also known as MSRP).

Now this is an important detail.  Your agreement with the consignor should state what the percentage of what you receive is. Is it based on the suggested retail price or is it based on the sale price when it is sold?

Wait. These are the same thing, right? The consignor will sell my $10 item for $10, right?

Not necessarily. I’m sure you have gone into the grocery store to shop the weekly sales. There are certain things that I don’t buy unless they are on sale. Your consignor may do the same thing. In fact, there is nothing to keep them from selling your $10 item for $.50 or even for $50.

Lets look at this through some examples:

Scenario 1:

You give to your consignor a product to sell for $10 with an agreement that you get 50% of the price it sells for. They sell it for $10 and you get $5.

Scenario 2:

You give to your consignor a product to sell for $10 with an agreement that you get 50% of the price it sells for. They run a sidewalk sale and sell it for $1 and you get $.50.

Scenario 3:

You give to your consignor a product to sell for $10 with an agreement that you get 50% of the suggested retail price ($10) when it sells. They take your product to Beverly Hills and sell it for $50. You get $5.

All of these scenarios are very real. While it may seem that scenario 2 is the most fair and the others are not fair at all, that may not necessarily be the case. The consignor has risks and costs to manage just like you do. These must be understood and terms negotiated before hand.

How Will I Know if My Product Sold?

You should expect your consignor to generate a report on a regular basis showing what products sold and for how much. This will differ from one agreement to another, but it should be at least once a month.

When Will I Be Paid?

This varies greatly between one consignor and another. It may be that same day (unlikely) or it may be as much as 90 days. Make sure you understand what their terms are so you won’t be surprised.

Who Is Responsible for Stocking?

For most of our consignment agreements, the consignor has re-ordered products they need to replace those that sold. This is particularly true of smaller consignment or gift shops.

We have had other consignors ask us to restock for them. This is very normal for high-volume shops. They are also good friends and it is a great reason to go visit.

What Has Your Experience Been Like?

Our experience varies from one consignor to another. Our first consignment agreement was a learning experience. We consigned with a small local handmade gift shop in the City Center. Here are some things that we learned:

Pros:

  • It was a great opportunity to get some exposure to the local community. We went into this agreement at first to make a lot of money. When we realized that our expectations would not be met, we changed our expectations.
  • It was a great learning experience without risking too much capital or time.
  • We did get some referral traffic from people who had seen us at this location.

Cons:

  • We gave the consignor our products for them to sell. This tied up product capital until it was sold.
  • When a product was sold, we didn’t get reports on a regular basis so we didn’t know what needed to be restocked.
  • The product we sent them was stored in a window with direct sunlight. This negatively affected the longevity of the product. (It lost its scent way too quickly)
  • Products that were damaged either by bad customer handling or negligence by the consignor had to be replaced by us at our cost.

To summarize, consignment is neither good nor bad. What makes consignment bad is when you have a poor agreement in place or have expectations that far surpass what the consignee is capable of providing (such as making a lot of money from a super small shop).

What makes consignment good is when you have a great agreement in place that covers all of the bases. You know what to expect and the consignor knows what to expect. It also helps when you set your expectations accordingly so that neither you nor the consignor will be disappointed.

Lastly, choose your consignors carefully. We are very cautious about who we consign with because we don’t want the stress of working with difficult people. We don’t chase a business just because of its name or location. We choose instead to work with people that we respect and we know we can work with.

However,

MAKE SURE YOU AGREE ON THE PERCENTAGE IN WRITING PRIOR TO SENDING THEM ANY PRODUCTS!!!!

 

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