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Every business with product should consider consignment

Every business with product should consider consignment

Sure there are some challenges that come along with consignment, but those challenges can be well worth it if managed properly. Sales, increased awareness, and great strategic partnerships are all possible through consignment.

Last summer, we reached out to a few local independent stores as a means to sell our chocolate (hot temperatures make shipping chocolate more expensive). Now, it’s a year-round program for us.

The basics of a consignment agreement go like this:

According to Wikipedia:

“Consignment is the act of consigning, which is placing any material in the hand of another, but retaining ownership until the goods are sold or person is transferred.”

“Features of consignment are:

  • The relation between the two parties is that of consignor and consignee and not that of buyer and seller
  • The consignor is entitled to receive all the expenses in connection with consignment
  • The consignee is not responsible for damage of goods during transport or any other procedure
  • Goods are sold at the risk of consignor. The profit or loss belongs to consignor only”

So, in our case, we display our chocolates (and some other products like soaps) at these shops, and get paid for them after they sell, minus a commission that the retailer takes. Each shop has a different payment schedule, different commission fees, and different policies. We are responsible for keeping track of our inventory and making sure shelves stay full. We also help drive traffic to these stores.

For us, the advantages are many. We’ve identified locations that have a similar target market, so the potential for customer engagement with our products is high. We have the ability to increase the exposure our products get to potential customers, since now our products are seen by a new audience. The most obvious benefit is that we capture sales. Especially during summer, this helps with cash flow. For our customers who prefer shopping brick and mortar, they can still enjoy our products without having to shop online.

Here are a few tips from what we’ve learned:

  1. Margin can be low due to the commission rate used by stores. Know the standard commission fee for your area, then, calculate if a consignment program is worth your time and energy. Also know that the commission rate may be negotiable.
  2. Focus on stores that already have a consignment model in place—it’ll make record keeping and the whole experience easier.
  3. Focus on shops that have an existing customer base that matches your target audience. While this seems like a no-brainer, it’s sometimes hard to assess if a business has enough traffic to create sales and exposure for your products.  Or, to assess if their target audience is similar enough to yours.
  4. Create a schedule for checking and rotating inventory, managing records, and promoting your products. Empty shelves or old product won’t sell. In order to know if consignment works for your business, you have to keep proper records, otherwise you won’t know important details like margin, inventory turn, or sell thru. By promoting your product placement in these stores regularly, you’ll keep your brand and the shop top of mind.
  5. Set goals and measure against them. Just like other aspects of your business model, goals will help you assess if consignment is viable for your products.
  6. Start small, build from there. Inventory can get expensive, so start with a few shops that you think will be a homerun.

Do you have experience with selling your products via consignment? Any tips you’d like to share?

 

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