Selling your handmade products on consignment

Having a consignment channel can be a great way of complimenting your online and craft show efforts as it gives you an opportunity to reach new customers and gain more sales.

Whilst it may just seem like a case of handing over your stock to someone and watching as the sales roll in, in reality it involves a lot of networking, negotiating and inventory management. It’s wise to be prepared for some research and planning to get the best results out of this strategy.

What is Consignment Selling?

Let’s start by defining exactly what Consignment actually is. Consignment selling essentially involves providing your goods to a shop, where the shop then agrees to try to sell your product in exchange for an agreed on commission fee.

Consignment differs from a wholesale agreement, as in this arrangement the reseller would purchase the stock upfront from you.

With consigning, until the product is sold, the product remains yours and is still considered part of your inventory. If the reseller fails to sell the items the assumption is that they will be returned to you.

If the reseller is however successful in selling your items, an agreed percentage of the sale price is then paid as a “commission fee”. The finer details of how your consignment setup will differ from reseller to reseller based on their selling power, your product range and your negotiating skills.

Why is consignment a good strategy for handmade businesses?

A consignment offer can be a great way to forge an ongoing relationship with a retailer and can be a first step towards a wholesale agreement. It can be a chance for the reseller to test your products in their retail environment to see how well they sell.

It also provides you with a track record of retail sales, which can be really useful when negotiating deals with other companies in the future as your business grows.

It’s also good for building your brand - customers can see your products and experience your range products directly, without “taking a chance” on a product purchased online from nothing other than a photograph.

Consignment works particularly well for certain products, however in the right store any product can be made a success using this model.

New or novel products are particularly good candidates - in a retail environment, the product can be demonstrated in detail, with any questions answered instantly.

Expensive items, like jewelry or gadgets can also be a great consignment product. These products tend to require more sales persuasion which can be time intensive for the shop, however the commission for these products tend to make the extra touch worth it for the reseller.

Products that benefit from the customer being able to see, feel or smell them prior to purchase also work really well. Clothing, bags, soap and fragrance are items that customers typically wish to experience in some manner before committing to a purchase.

Caveats to consignment selling

Consignment is not a great option if you are just looking for a way to offload excess stock - especially if you are willing to cut prices to do so. This can have an impact on your brand and reputation so proceed with this strategy with care.

Note: An exception to this rule may be to create an “outlet” type arrangement with a suitable retail partner and modifying your presentation to suit.

Also avoid resellers who demand extremely high commission fees as this will erode your profit margins - ditto for sellers that charge a “setup fee” or any upfront payment before placing your products in front of customers. Always try to agree on an initial commission percentage that is fair to both parties: if your sales go well, then you can then reassess going forward.

Damaged or missing stock can also be an issue with consignment - ensure that you are dealing with a reseller that takes appropriate care of your products to minimise this risk, and if you are really concerned opt to build allowance for this into your written agreement. As you are selling retail, a certain level of stock shrinkage unfortunately does tend to be assumed as part and parcel of business so ensure that you have factored in some expected loss to your margins to avoid any unexpected surprises.

How to find a consignment partner

Finding a good consignment partner (or “consignee”) takes careful planning - especially if you want to find a relationship that works for you long term and delivers the results you are after.

Shortlisting your consignment candidates

To begin with, you’ll want to make a short-list of your consignment targets and do some research to see how they fit with your product. You’ll be best to try and find shops that attract the same type of clientele as your own - trying to selling your babywear in a bicycle shop will be a lot tougher than the toy shop across the road.

Yelp can be a good starting point if you don't have an immediate list of candidates in your head - filtering by a location, general category and then by price range can bring back a good list to begin with.

An important factor in choosing good consignment partners is location: you’ll want to think about how you intend to send your stock to the consignee. If you have larger type items that are expensive to ship, you’ll most likely want to keep postage to a minimum - this can really cut into your profit margins, especially if you need to factor in additional consignment fees.

Local consignees can mean that you can keep costs down by fulfilling the stock yourself using your own vehicle - just remember to make sure to also factor in the cost of your own time being delivery driver as you'll be away from producing and selling your goods.

If you have small, inexpensive to ship items you may wish to also consider stores further afield. This can provide you with a bigger list of potential targets, however keep in mind that you may still need to factor in some time to visit these sites at least initially to discuss terms and placement of stock.

Once you have your shortlist, visit their website and take note of the way that they refer to their business and their product range. Look for press or interviews with the management team as this can be a great source of information you can use in your pitch.

It’s also really handy to go and visit the store in person as a customer before attempting to make contact. This will give you a good chance to see how the store presents themselves and displays their stock. You also have a chance to see what other products they sell and the price points they generally charge.

If you are generally happy with the way that they operate, try and visualise some examples of your stock on a shelf to see how it works with the surroundings.

Making contact

To get the best results, you’ll need to be seeing this stage as a business pitch to sell your brand rather than a simple request. Your job is to convince the shop why they should give up some of their expensive shelf space to stock your product over their own and other consignors products.

So, much like an interview: first impressions count! You’ll want to carefully think about the contact method you use to make sure it fits with their style of business.

Email is often preferable to phoning - if the store is busy you’ll often just end up with a hurried reply to send through your request via email anyway. Email is a great option for situations where you have a lot of potential partners to contact, however it can potentially come across as impersonal if done incorrectly.

For starters, absolutely ensure that you include the name of the store somewhere in your pitch. For bonus points, demonstrate that you have done your research by also referring to the person responsible for specifically stocking products. For most small businesses, the owner’s name is generally a good guess as they are also commonly the chief stockist.

Ensure that you mention the reasons why you feel that your products are a good fit. It’s a good idea to mention the feel or look of the store and other similar products they stock that you particularly like. Essentially, you want to make a case for the idea that their customers seem to be similar to your customers and this will lead to sales for them.

Try to keep as brief and to the point as possible - this shows that you are respectful of their time. Two or three paragraphs should be ample to get across your message.

Including some small images of your products can also be helpful - ensure that they are reasonably small so that they aren’t impatiently waiting for your email to download. Try to embed them directly into the content of your email rather than attach so that they are noticed.

Lastly, you’ll want to kindly request a phone or in person appointment with them to discuss your products and the proposal further. This is essentially your “call to action” so try to craft this section well.

Finally, proofread your email before you send to ensure you have complete, typo-free properly structured sentences (then, right before you send - check it one last time!)

How to create a consignment agreement

You’ve done your research, contacted some potential consignees and pitched your business successfully. Congratulations! Now comes the potentially daunting task of dealing with the legalities.

You’ll want to ensure that your rights and responsibilities are fully discussed, agreed upon and formally covered in a written document. If a disagreement occurs between you and your consignee, the last thing you want to be doing is relying on verbal promises to sort things out.

It’s common for the store to have a consignment agreement template already if they have had previous consignment arrangements. If so, ensure that you take the time to read and understand all points contained within the document. It’s completely fine to ask for amendments and/or clarifications if you need.

Here are some common areas to look at covering in your agreement.

Commission

This is the big part of the agreement: what percentage will you pay the consignee when they sell your products? If the store has other consignment agreements in place, they will most likely have a suggested rate however don’t be afraid to haggle on this!

Your agreement should clearly state exactly what percentage each party will receive when an item is sold.

Most consignment splits are 60/40. This means that you’ll get 60% of the revenue, while they retain 40%. It is incredibly important to factor this into your pricing to ensure that your profit margin is still viable.

Time periods

You’ll want to have a think about the length of time you wish to leave your products in the store for before you have the option to pick them up. This is particularly important if you sell seasonal items: a month-by-month approach may work best here to ensure that you have a chance to sell the stock before the season is over.

If the store has a lower volume of foot traffic, you might find that a longer consignment cycle works better for both to ensure that the consignee has a good chance of making sales for you.

Payment Schedule

The agreement should also state when payment will be made for sold items and the method of payment. Ensure that your consignee sticks with agreement here as late payments may signify that they have cashflow issues.

Shipping Costs

If you are intending to ship products to your consignee, it is essential to agree on who is going to be responsible for the postage costs. You may decide to pay for the shipping of products out to the consignee, with the consignee being responsible for any costs involved in returning unsold stock back to you at the end of the consignment period.

Incidentals

You’ll also want to define what happens when an item is stolen, lost or damaged - this is often where agreements and partnerships come apart, so it’s very wise to get this sorted out upfront.

You’ll want to think about who is responsible when the stock is lost in transit, or is damaged or stolen whilst being in the store under the care of the consignee.

Remember that from a purely legal perspective, the consigned stock at all times remains your property and loss and breakage is still ultimately your responsibility.

7 ways to make your consignment strategy a success

Once you have a consignment agreement in place, some stock sitting on shelves and hopefully some sales being made, you well on your way to having a successful consignment strategy.

To make this a huge success, you’ll want to put some effort into your communications with the consignee, and above all show that you are handling and anticipating their stock requirements in a timely and efficient manner. In this post, we’ll give you some tips on how to manage the relationship with professionalism.

Keep in mind that many wholesale relationships start on consignment, so if this is a possibility and you are aiming towards this you’ll want to be especially attentive and reactive.

• It’s perfectly fine to informally get in touch with the shop occasionally just to see how things are going. Often the stock sheets don’t tell the whole story about your sales and it’s a great opportunity to get some general feedback on how sales are going and how customers are interacting with your products.

• Be aware of holidays and busy times of the year that may lead to more sales and be ready with more stock if necessary.

• Ensure that you have full inventory records so that you are completely aware of where your stock currently is and how much is available for sale.

• When restocking, ensure that you always include an inventory list when dropping off your goods. A quick email to give them an idea of when to expect your stock is often very appreciated as they can then plan around this.

• Ensure that you are prompt when picking up old items. Ensure that you are aware of your seasonal items (e.g. scarves) and be ready to take these back when the season is over - these items can often be quite bulky and take up precious shelf space or storage room.

• Know how long your items have been at the consignee and suggest to swap out items that have been on the shelf for a while. New pieces can potentially catch the eye of regular customers who have already seen your old pieces on display.

• Always ensure that you check it is acceptable to bring in new product lines for consideration. New pieces can potentially conflict with other product lines they are selling, or they may not have the shelf space to accommodate it right now.