Should I consign or wholesale?
I hear this question often from BOTH retailers and makers.
Let’s start with the difference between the two.
Consignment is an arrangement in which an item is placed in the care of another until purchased by a buyer.
A consignment arrangement usually involves an agreement with a retailer and a percentage split on items sold. For example, the retailer may take 30% and the maker 70%. Every retailer is different.
- For the retailer: You will have to manage each of your consignment vendors, their sales, and issue a check or payment – usually done on a monthly basis
- For the maker: You might make a little more on each sale with this model but you are only guaranteed payment if your items sell in the retailer’s store
- Contract or agreement? Usually, Yes and the maker may have to complete a W9 if the retailer sells over $600 of the maker’s goods.
- Shipping or delivery? Consignment is ideal for selling to or buying from other local businesses. Most retailers won’t want to pay for return shipping if your items don’t sell in their shops. In most consignment relationships, it’s the responsibility of the maker to deliver and pick up items from retailers.
Wholesaling is the selling of goods in large quantities to be retailed by others.
A wholesale arrangement usually involves the retailer purchasing goods in larger quantities from a maker at keystone pricing (half of the retail price).
- For the retailer: You are taking on the responsibility of selling the entire quantity you purchase
- For the maker: You are selling your goods at a cheaper price than consignment prices, but you are receiving immediate payment when you sell your goods to a retailer
- Contract or agreement? Usually, No.
- Shipping or delivery? If you can ship your products, then you have a much better chance of selling nationwide or worldwide – you aren’t limited to buying/selling just in your local area.
How do you know what works best for you?
This is a personal decision for both retailers and makers. As a retailer, my sister and I made a decision early on to only buy wholesale. We didn’t want to juggle multiple vendors or spreadsheets of inventory and sales. I also have confidence in my sister’s buying ability, so if we purchase a large number of items from a maker we feel confident that it will sell in our store.
On the other hand, we know many shopkeepers who prefer vendor/consignment arrangements or a combination of both buying wholesale and consigning in their stores. And some who prefer to use consignment as a way to test if the product will sell well in their store – then they move on to a wholesale relationship.
For makers, I’ve also seen them do a mix of both. If wholesale is the route you choose, a wholesale line sheet will be useful for you. Also, check out my free checklist on selling to an independent retailer here.
One may or may not be better than the other. Consider what works best for you. Or maybe try each and then make an educated decision.
P.S. If you’re a maker, just be sure to price your products so that you can be profitable. Be prepared to set up systems and processes that will allow you to buy materials at wholesale or discounted pricing, and set up an efficient making process, so you can price your products well. Pricing might have to be a conversation for another day. Comment if you have questions about pricing!