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How to Sell Consignment

Filed Under: Business Musings

Recently on our Facebook Page, someone asked about selling their products consignment. If one person is having that question, you can bet others are. Selling consignment is often a first step to getting into a retail store. Consignment means that a store owner will take your product and instead of buying it, they will pay you for the product when they sell it. You own the product, in their shop, and are responsible for stocking the store shelves. You and the shop owner work out a deal for a percentage of the sales – generally a 70/30 or a 60/40 split with the store getting 30% or 40%. The reason that the store gets less than 50% is because you, the small business owner, are taking all the risk. First you will need a contract with the shop owner.

For those of you that are saying in your head, “Oh, I don’t need a contract. The store owner knows me/is a friend of mine/went to school with my brother/is in my yoga class/etc… and she/he wouldn’t possibly hurt me!”: Best intentions are lovely and I always go into any business relationship planning for win-win AND, I always have a contract. You, too, need a contract. This document will govern everything with the business relationship you have with the store owner. The contract should cover the following:

(1) The percentage split – Are you getting 70% of the sales price? Less?

(2) Rent or extra fees – Is there administration cost every month? Is there any rent that the owner would like you to pay for your part of the store?

(3) Theft and damage – Mistakes happen and unscrupulous people happen. Who pays for that inventory? You or the shopowner? Or, is it a split?

(4) Payment – How often are you paid?

(5) Removal – If things aren’t selling, when and how can you pick up your products?

(6) Inventory – Are you keeping track of inventory or is the store? What if there is a discrepancy?

(7) End Date – How long does this contract last? Under what circumstances can you get out of the contract?

Other things that you will want to take into account are general business questions – is this store in a good location? Will the store owner give you good placement in the store? Can you work with them on in-store promotions? Will you be proud to have your merchandise in the store?

It’s important for you to do the research into the store before you approach the shop owner. Is the store in good traffic location? Will the store owner do a good job promoting her store (and your products)? Your soap will be tied up in the store, while you still own it. It is a big risk and that’s why you are normally paid more than 50%. If you get a chance, talk to other people that are consigning in the store about how their products are being treated in the store and how their products sell through. Past experience predicts future experience.

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34 Comments

  1. This would be how I recommend to consign merchandise, and let me start off by saying that I do not use any shops that require you to leave your merchandise and wait for it to sell before you get paid anything, BUT, at the same time, If you prefer selling to shops that wait to pay you after selling your merchandise, then I am not telling you not to do this nor am I trying to discourage you from doing this as only you know what you prefer for your particular situation, and these shops are in no way wrong for doing it this way, but, from experience and from “trial and error,” I have closely evaluated both methods, and there are a number of risks and variables involved in this kind of consigning. Therefore, I personally recommend shops that consistently use the following method which provides guaranteed money for your items the shop agrees to accept and also alleviates all of the risks for you the seller: Take your items to the consignment shop, then let their buyer determine what the items are worth and how much of that amount they will pay you for each different item they agree to accept, then wait for them to write you a check or pay you cash for the items they agree to accept before you leave the store. That way, you are guaranteed your money without having to hope your items will sell at some later date, and you won’t run the risk of not being able to get your merchandise back if it doesn’t sell. Also, you avoid the risk of your items being sold for such a huge discount which is so deep that your percentage of profit becomes hardly nothing. Remember that the shop and not you determines what they feel they will price and sell your merchandise for and even those prices can have further markdowns over time, so if even if they agree to a high return like 70% for example and then they choose to sell your merchandise for next to nothing, then you could make a very small amount on a whole lot of merchandise and that is a huge risk which is not worth the time and work invested on your part to have gotten your merchandise prepared to consign only to make back a small fraction of what you could have been guaranteed by it being bought in store from a store that buys while you are there. You also don’t have to hope that your merchandise might sell at some future date and have to wait the time it takes to get your items on shelves as well as for them to sell, if they sell, with which that whole process can take quite a while. At shops that buy your items in store, your money is guaranteed whether or not your merchandise sells, and besides getting guaranteed money, consignment shops that buy your items in store sell the items for a markup which is more than what they paid you for the items, but still less than buying the items brand new, and these shops generally are not quite so particular on requirements just to accept your merchandise even if it is not in perfect condition. People will buy and can make use of items that are not in perfect condition the same way people will and do buy scratch-and-dent items, and there are some people who specifically look for this kind of stuff because it can be bought fairly cheap, so if that shirt is missing a button, or you have an item that still works like it is supposed to, but is not in perfect condition, take it to a store that buys while you are there as you will stand a very good chance the shop will still agree to accept your item “as-is” and pay you for it. That is how these shops make their money, and also how they entice people to consign. It is a win/win/win situation as you make money and the merchandise is off your hands for sure, the shop makes a profit, and customers looking for a good deal get bargains on buying YOUR merchandise. Everyone wins!

  2. Hi A-M, I know this is an older post, but I have had a consignment opportunity to present itself quite out of the blue. A friend consigns her jewelry to the store and had nothing but good to say. I have been soaping for around two years now mostly as a hobbyist, with the exception of selling to friends and a couple of holiday events at work. Since I work a full time job and setting up at markets would be quite difficult for me with my work schedule, this seems like a good fit for me. I haven’t yet set up a business license/tax id or insurance. I assume that will still be necessary, and was something I was planning to do soon anyway in hopes of branching out into sales. Can you give me any advice/information on how taxes would be handled for consignment sales?

    • Hi Laura,

      Sounds like a perfect opportunity for you! So the consignment shop owner generally takes care of the sales tax of the consigned goods during the sales transaction (if you are in a state with sales tax). What you’d be responsible for is to report, and thus pay applicable taxes on, your portion of the income generated from the sale of the consigned goods (your take will be determined by what you and the shop owner work out). And yes, you’ll probably need a biz license as well. All this being said, I would definitely recommend consulting an accountant as well just to be on the safe side. Maybe your friend has some recommendations too! I hope this helps =)

      Kristen with Bramble Berry

  3. Hi Anne Marie
    It seems that selling wholesale is better than consignment. Do you have precedent for a wholesale contract please? I am a newbie in soapmaking. Thank you.

  4. I know this is an older article, but I had to share what I am currently going through. I consigned with a small shop for almost two years, we didn’t have a contract, I kept track of my inventory, etc. things were going well, then the shop owner decided to close down without letting me know (another consigner let me know). Anyway, she closed down over a year ago now and I am STILL fighting with her to get my inventory back…. It’s out of town, so I have to make a special trip to get my stuff. Every time, it’s some excuse with her as to why she didn’t show up. She doesn’t answer her phone or respond to my emails. I might have to take this as a loss, which is a horrible thought to have after having put so much time and money into that inventory that she is holding hostage. :(. She was my first consigner, so lesson learned!

    • That is sounds so frustrating, Liz. I’m so sorry that you’ve had to go through that with the shop you consigned with. Thanks for sharing your experiences with us, I know others will be able to learn from them as well. Good luck in your future ventures, we are here to help if we can! 🙂
      -Becky with Bramble Berry

  5. I didn’t read all of the comments, but another thing I’ve learned the hard way is “who pays shipping if the consignment store is not local”

    Shipping fees add up! If your items are heavy, they add up even more! How many items can you fit in, say, a flat-rate USPS box. Now subtract that from your profits (70%, 60% already), now how much are you really making if you have to pay for the full shipping.

    I had to cancel a consignment contract because I was only making $1 off of each item sale (bath bombs) it just was not worth it! I hope this helps others too! Now I’ve learned, and I always discuss shipping fees and whether or not the cost is divided up. It’s saved me a lot of stress and a lot of unnecessary expenses! 🙂

    • Good one! That is such a big question and yes, it is usually the manufacturer that pays the shipping (which is opposite – normally, it would be the other way around in a traditional retail environment).

  6. Morning Anne-Marie

    Thanks for the info on consignment – my question is when working out say a 70/30 or a 60/40 split do you take out your cost of making the soap or just a split of the selling price – hope this is not a dumb question.

    Mae
    UK

  7. Hey Ann Marie,
    I am new to skin care products but have been in the candle biz for a while now. I consigned to a local mom and pop shop and kept excellent records and made sure she knew it! I walked in every time with a store folder with all previous invoices, signed receipts, payments from her, etc…. when she doubted what she had sold due to ‘her’ poor records I showed her what she had signed for the previous months and what was in actual inventory. She still doubted my records and told me to get our of her store as she was throwing things at me! I had to call the sheriff to get my inventory out of her shop and later send her a letter letting her know she in breech of our contract and must pay in full within 10 days of notice or will go to small claims court. She paid me in full! We obviously quit our relationship! I don’t consign anymore because if they don’t sell your product and the season for that fragrance/flavor is over, your stuck with old product. I only wholesale now and customers must meet certain qty requirements for me to wholesale. This way if they don’t sell the product then they are stuck with it and not me. Sometimes the exposure of the shop is worth taking a little less profit and considering it a ‘marketing’ expense….

    • Wow, what a terrible story. It sounds like that was a big growing experience for you. I’m sorry it had to happen to you. And bottom line is that business owner did not act honorably or ethically. Even if she disagreed with you, obviously, there are better ways to act and if she did that to you, she would act unkindly towards other customers and vendors as well.

      Also, excellent point re: outdated fragrances and scents.

      I hope the rest of your retailing experiences (consignment or not) turn out to be much better! =)

  8. This post came in time as I was thinking about how to even start handling this part of the business as store owners have been asking me about carrying my soaps in their stores. I agree with those that are asking for a blank consignment form. Thanks Anne-Marie 🙂

  9. One time put my soap in an antique store on consignment. The store went out of business 4 month later, and when I went to get the left over inventory, it all smelled like musty old furniture. I only sold about half of the inventory, so it was a bust. The soap that smelled bad, was not good to resell. I tried re-batching some of it and adding more fragrance, It still smelled a little musty, so I just ended up using it myself. Lesson learned. 😉

  10. Hi Anne Marie,
    Great article (as always)! Would someone mind posting a copy of what they’ve used for a consignment contract in the past as an example? (All personal info blacked out of course.)

  11. THANKS FOR SHARING
    I HAVE A BOOTH AT FT. JACKSON IN COLUMBIA, SC,
    I HAVE TO PAY A VENDOR FEE EACH WEEK BASED ON SALES
    PERCENTAGE RANGE FROM 20% TO 22%

    • Fantastic – so you pay 20-22% and don’t have a booth rental fee? How are sales? Are you happy with the arrangement? 20-22% is a great rate if there’s no extra fees on top of that.

  12. I know that many soapmakers do not like to sell through consignment because of the risk. I’m lucky enough to have found one that has been excellent for me. And I hope that others will at least give it a try if they have the chance. I would suggest that one of the most important things to consider is whether the whole store is stocked on consignment or just some of the items. If it’s the whole store, then the owner is more likely to be motivated to sell your product (along with the other sellers’) since that’s how SHE gets paid, too. And ask to talk with other sellers that are already in contract with the store owner. They will be a great source of info.

    • Great advice. When I was 18 years old and selling soap, I had several consignment accounts and the store owner’s motivation definitely plays a part in sales – 100%. One lady let me pile my soaps HIGH as the first thing people saw when they walked into the store. Yes, I had more damage and theft BUT sales were way better than in stores that had smaller displays closer to the back. I think that the store owner where I sold more also was a fan of her youngest vendor =) Her motivation was definitely a factor for sales I think.

  13. Thanks, Anne Marie! I really appreciate this blog! It is very hard decisions whether to pursue wholesale, individual sales or consignment sale. Some of the things on contract are very confusing to understand and even when I do understand, fear of unknown factor in consignment end up getting me. This article has very good point for me to think about and It is nice to review all those key points to check on before entering anything. additional things that I had to think of- not that you did not touch it but want to point out, that duration of the contract and termination- when and how. I think it is very important to know how long I will be bounded with the contract and how do I terminate it if and when I want to and stuffs. 😉

    Thanks again for great article!!! Great knowledge!

    • Often times, you’ll find that stores will only agree to bring you on after they’ve tried you out for a small amount of time on consignment to see how well your products sell so sometimes, it’s a stepping stone to a “real” account where the store owner takes all the risk.

      Great reminder re: time for contract. I am so adding that point to the blog post right now =)