I am frequently asked by clients if they should sell consignment to retail shops. This question typically comes from newer businesses as they're trying to expand their avenues of distribution or their sales channels.
What is consignment? Essentially you're lending your product to a retailer. You don't have to run the risk of rent, overhead, labor, and salaries with consignment.
If you want to sell consignment, there are some pros and cons. I want to review them with you, and some things that you want to watch out for.
Some of the pros of selling consignment:
You get new accounts.
You don't have to worry about overhead.
Some of the cons of selling consignment:
You run the risk of getting the product returned to you.
You run the risk of not getting paid.
I have a list of five things to watch out for if you're considering consignment.
The first thing I want you to think about before you decide to give your product to anybody without paying is this:
First - Is the store a good fit?
Does the store you are considering have a good mix of products that your products will blend in with? For example, I'll use candles because I sold candles. You wouldn't want to sell candles in a clothing store. You would put candles in a home décor store. Ask yourself, does the store you are considering have products that would compliment your products?
If the mix of products is a fit, you have a higher probability of your products selling.
Second - Is the store in a good location and do they have traffic?
The store needs to have the potential of getting people in the door to buy your products. Is it a good store location and is there traffic?
Third - Set an agreed upon timeline for how long you're going to leave your products in the store until they have to pay.
I've seen some consignment deals go bad. You assume they will pay in 30 days but 120 days later it hasn't sold, and you haven't been paid. At what point are you going to say, "I want my product back?" So make sure you have that timeline in place.
Fourth - What are the payment terms and when they are going to pay you?
I've seen some consignment deals go sideways due to payment terms. Don't assume you're going to get 50% of the retail back. A lot of consignment stores only pay 25% of retail. Make sure that you have it in writing what the agreed up terms are.
Five - Plan for returns and get it in writing.
Have a thorough understanding of returns. I have seen bath and body products just thrown in a box rolling around without packaging. By the time it got back to the vendor, it was all ruined. It had dented bottles that leaked all over and destroyed everything in the box.
Make sure there's a clear expectation of how that product is going to be returned. Should it be put back into the original packages? Who is going to pay for freight? Have the terms and conditions written down in your contract for the return.
Now it's up to you to decide if you want to do consignment. I typically don't suggest it. However, if your business is new and you're trying to expand your reach with new accounts, and you know it's a good store, all of the points that I talked about have been considered. Then decide, "is it a good fit and is it worth the risk?" Do you think you have a high probability of getting paid? If the answer is yes and you feel good about it, give it a try.
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