What is consignment?
Consignment is a popular trading method, particularly in the retail industry. Instead of buying loads of stock upfront, you could get your goods on consignment, meaning you only pay for what you sell.
A consignment store usually specialises in one type of consumer goods such as clothes, beauty products or second-hand furniture. Say you’re a retailer selling beauty products. You may source those products from another business, like a wholesaler.
How do consignment sales work?
If you set up a consignment deal with another business, you’ll need to agree on two things: revenue split and a time frame for selling the products.
Let’s say you (the consignor) expect to sell 100 bottles of foundation in one month and agree to do a 50/50 revenue split. For every £10 you make on a bottle, you’ll give your wholesaler (the consignee) £5 in return. That’s £500 back to your wholesaler if you sell all your stock.
However, if you don’t sell everything within that month, you can return it free of charge. That’s provided you get the goods back to the wholesaler before the agreed deadline.
What are the pros and cons of consignment deals?
The biggest benefit of a consignment deal is that you, the consignor, won’t need to pay anything upfront. Setting yourself up as a consignment shop is ideal if you don’t have lots of budget behind you yet.
However, it does mean you need to rely on your consignee to provide you with a steady supply of products. And, if you have lots of products left over that you can’t shift, you might end up paying some hefty fees if you don’t return them on time. But that’s something you can bear in mind when you’re making your orders.
How to set up a consignment deal?
If you’re ready to buy goods on consignment, here are some tips to setting up a good deal:
1. Find a vendor
First things first, you’ll need a wholesale vendor who offers goods on consignment. Luckily, there are loads of wholesalers who use this model. For anyone using Shopify to host their online store, there are a number of Shopify apps you can use to find the best wholesale products. For example, Wholesale Genius lets you find vendors, products and assign competitive prices.
2. Draw up your consignment deal
Once you’ve formed a relationship with your vendor, it’s time to draw up a mutually beneficial agreement. This is when you’ll agree on pricing and the consignment fee which sets out how much profit you’ll send back to the vendor. You’ll also discuss where the goods will be stored and the time frame in which they should be sold. Many wholesalers will require you to make a minimum order - for e.g. 500 bottles of foundation, which you’ll need to sell within X amount of days. Getting this all written up and signed on paper will ensure you’re both on the same page.
3. Market your products
Finally, if you want sales, you’ll need to do some marketing! This is when you’ll set up a website, create your social channels and start spreading the word about your products. Take a look at our guide to ecommerce marketing to get started. ✨