Saturday, March 01, 2014

The Business Chat - The ABCs of Selling on Consignment


Consignment is the most common method of selling to stores and the topic of today’s post.  

Selling your work on consignment means that you place work in a shop and when they sell something they pay you a percentage. Unlike wholesale where the store buys it outright, with consignment you retain ownership of the work until the customer buys it. It’s like you are renting shelf space. Consignment is often the easiest way to get your products into a store and is a good first step if you're just starting out. 

Consignment is beneficial for shop owners and designers alike: it allows shop owners to fill their shops with items at no upfront cost to them and lets them test out the saleability of your goods to their customers. For you, it's beneficial as you retain a higher percentage of the sales price on your items than you would selling via wholesale (or, you should!) while also testing our your saleability in different markets, and getting exposure in retail shops. 

A typical consignment agreement is 60/40 in your favour. Consignment is also good for selling one-of-a-kind or very high-end pieces. A big advantage of consignment over retail craft shows is that your work is continually on display somewhere, not just when you're doing shows or parties. 

Even in a great store or gallery, there are disadvantages to consigning work. One is the lag time between delivering your product and receiving your money after it sells. Your inventory may be tied up for a long time without bringing you any return. The store or gallery may shut down and the owner may disappear with your work and the money they owe you. The store may not issue payment promptly. Finally, a retailer has less incentive to promote your work since they haven't invested any of their own money in it. 

It’s very important to maintain more detailed records than you would in other types of selling. Inventory is money, your money, and it’s sitting on a shelf in someone else’s store under someone else’s control.

When you do agree to place your work in a consignment store (either online or brick-and-mortar), make sure you get a consignment agreement signed! Most stores will have their own agreement: read it, and if you don’t like parts of it, work it out before handing over your work. Be sure that both parties have a signed and dated copy of the consignment agreement. 

A consignment agreement must talk about the following:
  • Inventory: Generally, the agreement includes an inventory sheet of all the items that you are placing on consignment with the shop- it should list the item quantities, descriptions and retail prices.
  • Sales split: When your item sells, the shop owner will retain a certain percentage of the sales price of your item, and you will receive payment for the remainder. The most typical consignment split is 60/40, with the designer/seller/you retaining 60% of the sales price and the shop getting a 40% commission
  • Payment schedule: The agreement should explicitly state when you can expect to be paid for work that has sold. Often, payments are made by the shops every month for all sales that occurred the month prior. You should also know how you will get paid (via check? paypal? cash in store?) and you should expect to receive a list of items that have been sold along with your payment
  • Duration of consignment: Each consignment agreement should have a trial period. Both you and the gallery needs to make sure that it is a good fit. Once the trial period is over you both have a right to end it. You should also be able to pull your items from the shop and have them returned to you whenever you'd like, as technically, you still own them- remember that. You don't want your items collecting dust on the shelves for too long and if they haven't sold after a period of time, then perhaps it's not the right market for you anyway.
  • Shipping costs: For out of town/online consignment, it is usually the designer's responsibility to pay for shipping costs to the shop, and generally the shop's responsibility to pay for shipping costs back to the designer if the work doesn't sell. It's always best to ask the shop their policy upfront and get it in writing.
  • Insurance: It is usually the responsibility of the shop to assume the loss for stolen/lost property or items that are damaged by shop/customer error, make sure you clarify this up front!
  • If damage occurs due to faulty workmanship on your end (e.g. a clasp falls off one of your necklaces) then responsibility for that loss should be yours.

Here’s one last BIG piece of advice. When you first start your crafty career, and a store asks to carry your work, it is a real ego boost. Many new makers make the mistake of putting their work in every store that asks, thinking that stores = sales. This is not true. 

Take a really good look at a store you are considering for consignment. Make sure it’s a good fit for your work, do they carry other work similar to yours? Is it a store your target market would shop at? 

Now stop and think about this. If the store owner asked you for a loan, to invest money in the store, would you do it? Do you think you will get a good return on your investment? If the answer is no, then do NOT place your work in the store. Putting your work in a store is the same thing as investing in the store. You paid money to make your work. You are giving your work to the store, this is the same as giving your money to the store.  If you wouldn’t give them cash, then don’t give them work. 

Once you have placed your work in a store, keep in touch with the buyer to see how it is selling. You don’t need to stop by daily, but calling every 2 or 3 weeks to check in and see if they need more is always a good idea. 

Succeeding in consignment requires excellent record-keeping and careful planning. On the plus side, a good gallery understands that the more they sell the more money you both make. A good gallery is a win-win situation.

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