Picture this: your business is picking up steam and people other than family & friends are buying your products and raving about them! This is an exciting place to be, and you’re dreaming of growing your beauty empire. Then one day you receive an email from a shop owner expressing interest in carrying your products! Excited, you start imagining shipping out hundreds of bars of soap and depositing a big fat check into your business account. But then you read the word ‘consignment’ and stop in your tracks. What does that mean? How do you get paid? Is it a good move for you and your business? Today we’ll give an overview of selling products on consignment and discuss the pros and cons. Tomorrow’s post will suggest tips for a successful consignment arrangement.
Consignment is when you provide products to a shop and they get to work selling the products to their customers. Rather than getting paid up front for your products, as with a wholesale account, you are paid on a pre-arranged basis after your items sell. With my body care line, Vintage Body Spa, I’ve had excellent consignment arrangements and some that were horrible, where I learned some big lessons the hard way. Here are some pros and cons to selling on consignment:
Pros to Selling on Consignment:
Provides another sales outlet – it’s a great feeling to be able to say ‘My products can also be found at XYZ Boutique’ and be able to earn more money than just selling on your website. You get more exposure to potential customers by being on retail shelves.
Test out new products – you can make small batches of items and see how well they sell. Store owners and customers are usually more than willing to give feedback and suggestions, and if the product sells out quickly then you know it’s something to consider adding to your regular lineup.
Higher profit – Most consignment fees are split 60/40 or even 70/30, meaning that you get 60% of the sale price when your product sells. Compare this to the standard profit of 50% with wholesale accounts, you have the opportunity to earn more money this way.
Cons to Selling on Consignment:
Waiting to Get Paid – The biggest drawback to selling on consignment is that you’re not paid upfront. This can be difficult if you don’t have a steady cash flow and still need to buy ingredients and supplies to make your products, but aren’t paid for finished products until they sell. Payments may only be made once per month for all of the items sold in the previous month, so you may have to wait a number of weeks to collect payment.
Inexperienced Sellers – This isn’t always the case, as there are some stores who have become quite successful over the years with a consignment format. But I’ve found along with others that the majority of shops requesting consignment arrangements have recently opened and they are trying to protect their own cash flow by only accepting inventory on consignment. Working with an inexperienced shop owner can bring its own host of problems, including not knowing or accurately determining the types of products their customers want, budgeting incorrectly and then having to scramble to pay their own bills on time and then pay the consigners for their sales.
Liability – most consignment agreements state that you as the consigner are responsible for the products at all times – from the moment the items leave your facility, while in transit to the shop and while the products are on the store shelves. This means if a customer or employee damages or breaks a product, the store is not responsible for it – you must eat that cost. Also, some shops (again, not all – this is a generalization) aren’t as careful with consigned products knowing that they’re not responsible for them. For example, I had a consignment term end and I decided not to keep my products at the store. The store owner packaged my products and shipped them back to me but didn’t take the time to properly wrap and package the box. The items arrived back to me dented and damaged, and I lost all that money because the products could not be sold to another customer. That was definitely a hard lesson to learn.
There are certainly risks and benefits to selling on consignment, and it is not a decision to make lightly. Come back tomorrow to learn about ways to protect yourself and have positive consignment experiences.
Your turn: Have you sold items on consignment? Did you have a positive, negative or mixed experience? Please share in the comments below.