Selling on Consignment: What You Need to Know Before Taking the Leap

How Consignment Differs from Wholesale and Dropshipping, Plus Tips for Success

When it comes to expanding your handmade business, selling on consignment can be a game-changer. But before diving in, it’s essential to understand how it works, how it differs from other methods like wholesale and dropshipping, and what you need to know to protect your business.

What is Consignment?

Consignment involves placing your products in a retail store, where they are sold to customers. However, the key difference is that you only get paid once the items sell. The store does not buy the products upfront as they do in wholesale. In this arrangement, you maintain ownership of the goods until a sale occurs. Afterward, the store takes a percentage of the sale, typically ranging from 30-60%.

Consignment vs. Wholesale and Dropshipping

Wholesale: When selling wholesale, retailers purchase your products upfront at a discounted rate. Once they own the goods, they can sell them at their discretion, and you receive payment regardless of how quickly they sell. This arrangement provides immediate cash flow for your business.

Dropshipping: In dropshipping, you hold onto your inventory until a customer places an order. The retailer acts as a middleman, listing your products on their site. When a sale is made, you ship the product directly to the customer, meaning there’s no need for a physical retail presence.

Consignment: Consignment sits somewhere between these two. You supply the store with products, but you only get paid when items sell. Unlike wholesale, you don’t get paid upfront, and unlike dropshipping, your products are physically in the store's inventory.

What You Need to Know Before Consigning Your Goods

1. Have a Clear Contract: It’s crucial to outline terms in a contract. For instance, if goods go missing, are damaged, or are stolen, who is responsible? Does the retailer cover the cost, or will they deduct it from your payment? Also, consider what happens in the event of a disaster, like a fire or flood. Be specific about payment terms: how often will you be paid for sales, and what is the percentage split?

2. Payment Terms: Retailers typically pay out once a month for consigned goods. Make sure your contract clearly states how and when you will receive payments. From my experience, setting payment terms is crucial to avoid cash flow issues. I’ve had to adjust my terms before because some retailers were taking longer than expected to pay. A quick adjustment in my contract helped streamline my payments and avoid delays.

3. Inventory Management: Consignment means your products could sit on store shelves for some time. I once consigned a batch of bath bombs to a boutique. After two months, half of them hadn't sold. I realized that I needed to monitor my consignment stock regularly and arrange swaps to keep the inventory fresh. Consider building a system for tracking what’s selling and what’s not.

4. Consider Your Margins: Remember, you’re not getting paid until the items sell, and the retailer takes a cut. This arrangement can be risky if you have a tight profit margin. In my business, I usually consign higher-margin items to account for the retailer's commission.

Pros and Cons of Selling on Consignment

Pros:

• Increased Exposure: Your products get into more stores, attracting a new audience.

• Market Testing: You can test different products or designs in a retail environment without the pressure of upfront sales.

Cons:

• Delayed Payments: Since you’re only paid when items sell, it can impact cash flow.

• Inventory Risk: Unsold items may need to be retrieved or swapped out, and you may bear the cost of missing or damaged goods.

Consignment can be a great way to test the waters in new markets, but it’s essential to know the risks and protect your bottom line!"

Before jumping into consignment, ensure you have a detailed contract to safeguard your products and outline payment terms. Consider your product margins, how you'll manage inventory, and be ready to swap out slow-selling items to keep your offerings fresh.

Question:

Have you tried selling on consignment before, or is this a new opportunity you’re considering for your handmade business?

Ready to explore other ways to get your products into stores? Check out Wholesale Made Easy, my step-by-step guide designed to help handmade sellers navigate the wholesale market confidently. Learn how to connect with retailers, craft compelling product pitches, and grow your business with consistent wholesale orders.

If you’re looking to expand your reach and boost your sales, Wholesale Made Easy is your go-to resource for wholesale success!