What’s a Fair Consignment Percentage? (How To Negotiate an Increase)
If you’re considering selling your handmade items through retailers, you may be considering consignment shops and wondering what a fair consignment percentage is.
This article will cover what’s considered “fair”, why a percentage is fair, and answer some common consignment questions.
What Percentage Do Consignment Shops Take?
Consignment shops typically take a 40% commission, which is considered a 60/40 split. 40/60 or 50/50 split is also appropriate, depending on the products you’re selling and the type of consignment shop you’re selling through. A fair consignment percentage ensures both you and the shop owner are profiting with the sale of one of your products.
Consignment shops that work with local makers often pay a higher percentage to the maker than say, a clothing consignment shop would give to someone selling their used clothes. The work a maker puts in to produce a product from scratch is greater than the work someone puts into bringing their used clothes into the shop.
As a maker running a business, you have more expenses than someone without a business trying to make some money from their old clothes or other used goods.
The consignment shop also has expenses and costs associated with selling your products for you, which is why they deserve a decent chunk of the money received from the sale of your products.
>> WHEN THE CONSIGNMENT SHOP’S PERCENTAGE MIGHT BE HIGHER
There are occasions when the consignment shop will receive a bigger commission than the maker, or a higher percentage than average.
The consignment shop may take a higher percentage if they’re an established shop and generate good sales. You, the seller, are likely benefiting more from a consignment deal than they are since they have a list of businesses that would like their products in their store.
If the consignment shop doesn’t focus on selling handmade products, their commission percentage may again be higher. For example, if they’re selling second-hand goods, they’re likely not dealing with other businesses; they’re dealing with people who want to make a little extra money while getting rid of their old stuff. The consignment shop has more costs to cover to sell those used clothes, than the person who owns the clothes does, so the consignment shop will take a larger percentage of the sale.
>> WHEN THE MAKER’S PERCENTAGE MIGHT BE HIGHER
There are occasions when the maker will receive a bigger commission than the consignment shop owner, or a higher percentage than average.
You, the maker, may be able to collect a higher percentage of each sale if you have an in-demand product and have been approached by a consignment shop. If the consignment shop is new, or lesser-known, you may have the upper hand and reach an agreement where you receive the greater commission percentage.
The maker may receive a higher percentage after having a proven track record of their products selling well in a consignment store. They may start with the lower consignment percentage and then negotiate a higher commission percentage based on performance.
>> WHY IS CONSIGNMENT PERCENTAGE DIFFERENT THAN A WHOLESALE PERCENTAGE?
Wholesale prices are typically 50% of a retail price.
For example, if I sell handbags at craft shows for $100, craft show shoppers/consumers pay $100 for a bag. $100 is the retail price.
If a retailer/brick & mortar shop agrees to carry my handbags in their store, they will typically pay me $50 to buy a handbag at wholesale price, and then they will sell it in their store, to consumers, for $100.
The 50% discount retailers receive from me allows them to sell my handbags at a higher price than they purchased them for so they can make a profit with each sale.
They deserve that 50% discount from me because they are likely buying multiple items with each order (which reduces my costs per transaction), and they are taking on the cost of marketing and selling my products.
The reason a consignment percentage is often different than a retail percentage, and the handmade business benefits more from a consignment sale than a wholesale sale, is because the handmade business takes on more risk in a consignment deal.
A consignment shop doesn’t have to pay any money upfront to carry your products in their store. If they sell, they make money, if they don’t sell, they don’t lose money. It’s sort of a win-win for them and a win-lose for you. If your products sell, you make money, if they don’t sell, you get the product back and could be taking a loss or incurring more costs to try to sell them on your own.
On the other hand, when a retailer purchases your products at wholesale prices, they take on all the risk, so they receive a bigger percentage than consignment shops. If the retail shop sells your products, they make money. If they don’t sell your products, they lose money. Whether your products sell in their store or not, you still make the same amount of money.
How To Negotiate A Higher Consignment Percentage
To negotiate a higher commission percentage from a consignment shop, you must know what your products bring to the table. Know your sales numbers, profit margins, and have proof that you can help the shop make more money.
You’ll have a much easier time negotiating if the shop owner approaches you first. If they offer you a lower percentage than you’d like, you can let them know that you typically don’t offer your products on consignment for less than ______ (insert desired percentage here).
If you want to play hardball, you can let them know you’re unable to provide your products for less than that commission percentage. Otherwise, you could let them know what you “typically” expect for a percentage and ask if they’d be willing to come up.
If you’re new on the scene and your products don’t have a proven track record, consider negotiating a short term deal that you both agree to revisit once your products have had a chance to sell in their store. Be sure to get any deals you make in writing.
After a few months of your products being in their store, if they’ve sold well, let the shop owner know you’d like to negotiate a new percentage.
If you’ve made their life easy by providing products on schedule and being an organized business owner, and your products have sold well in there store, they should be open to giving you a higher commission.
What Is a Consignment Shop?
Consignment shops are local stores (consignees) that sell products on behalf of the people who own them (consignors). The people who own the products the consignment store is selling, continue to “own” them until they are sold to a customer.
A consignment shop can sell a variety of products or specialize in selling a particular product. For example, a consignment shop may be focused on selling a variety of second-hand goods or selling only second-hand clothing.
Most consignment shops selling handmade goods will sell a variety of products, as long as they’re made by *local makers (local may be within the city, state/province, or country). They’re sort of like the brick & mortar version of Etsy.
The benefit to the consignee (the consignment shop owner) selling your products through a consignment deal is that they don’t have to go into debt buying products to fill their store, before knowing if they will sell or not. There is less risk in “borrowing” products from people or businesses and only paying for them if they sell.
How Consignment Works
Selling goods on consignment means that you give your products to the consignment shop owner and they will display them in their store. If an item sells, you will be paid the agreed-upon sales commission for that item. If an item doesn’t sell, it will be given back to you and the consignment shop will pay you nothing for that item.
When you enter into a consignment deal with a shop, you should both agree upon set terms and sign the agreement.
Those terms may include:
- The percentage each party gets when an item sells
- Prices items will be sold at (i.e. they must be sold at the retail prices you set)
- Who is responsible for tagging items (e.g. does the consignment shop put their price tags on the products or must they arrive at the store tagged and priced?)
- The length of time your products will remain in the store
- How many items you will supply to the store within a time period
- Which party is responsible for shipping products to the store (if applicable)
- Which party is responsible for shipping unsold products back to you (if applicable)
- When you will be paid for sold items
- What happens in the case of stolen, lost, or damaged goods
- Length of the agreement
- Terms for terminating the agreement
As the consignor (i.e. the maker/owner of the product) it’s important to treat consignment deals as any other business transaction.
Keep track of the products you’re “loaning” to the store and have the shop owner sign an invoice at drop-off so there are no disputes over if they did or didn’t receive a product, or if a product did or didn’t sell.
If you drop off 10 items, they pay you for 7, but only return 2, you won’t eat the cost of that missing product. They signed an invoice agreeing they were given 10 products, which you should be paid for or given back. If you’re not, they should be held responsible for paying for that lost product.
It will also be important to note prices in invoices you give to the consignment shop. List the name of the product and details (e.g. Green 8 x 10 Tote Bag), the retail price it should be sold at, and the amount you will be paid if it sells. It helps keep track of money you’re owed.
When you get unsold items back at the end of an agreed-upon time period, it will be your responsibility to sell those products through other methods or incur their costs. Keep in mind, by the time you receive those products back, they may be out of season, out of date, or shopworn, making them harder for you to sell.
How Do You Price Consignment Items?
You price consignment items the same way you would price items if you’re selling straight to the consumer.
It would be unfair for you to sell your products at a craft show for a lower price than a consignment shop must sell them at.
The price of your products doesn’t change whether you sell them at a craft show, wholesale to retailers, or through a consignment shop.
The only thing that changes is how much you get paid for the sale of a product and how much you profit.
How To Find Consignment Shops Near You
To find consignment shops near you, use Google to search “consignment shops in _______ (name of your city)”.
Participating in craft shows is also a great way to come in contact with local retailers, as many will visit events to find local makers. Craft shows also give you an opportunity to chat with other makers and ask them if they know of any good consignment shops in the city (you’ll of course want to ask craft show vendors that aren’t your direct competition; for example, if you sell candles, ask a soap maker or jewelry maker, but not another candlemaker).
You may also approach some of your favorite local shops and ask how you would go about getting your products into their store.
It’s important to choose the right consignment shops for your products. Make sure the consignment shop targets the same type of consumer your business does, and that your brands compliment each other. It won’t be beneficial for you or the shop owner if your products aren’t a fit for the type of person who shops there.
For example, if I sell candles with sarcastic phrases on them, some even using swear words, I would want to approach a consignment shop that targets consumers who are a little edgier. I wouldn’t approach a consignment shop that targets a very conservative market, as I’m more likely to be turned down and have wasted time pitching to the store. Even if I did get my products into the store, they’re less likely to sell.
When you find a consignment store you’d like to sell your products through, call, email, or stop in at a time that’s not busy, let them know you’re a local maker, are interested in getting your products into their store, and ask who you should speak with regarding the matter.
You should then be prepared to send them a lookbook, link to your website/online shop, or drop by with samples, and give them your best sales pitch; why you think your products would be a great fit for their customers. Tell them how they will benefit by carrying your products in their store.
How Do you Negotiate At A Consignment Store?
If you’re a shopper considering negotiating at a consignment store, it’s best not to. The consignment shop and the owner of the goods have likely agreed upon a price to sell the items at, so they probably don’t even have the authority to lower prices for you, the shopper.
It is a good idea, as a maker, to ensure retail prices are agreed to in your consignment terms (and wholesale terms). You don’t want a consignment shop setting their own prices for your products and you getting a smaller paycheck than you hoped for.
If you’re a maker working with a consignment shop, you can absolutely negotiate with the consignment shop to earn a greater commission.
Some circumstances are more appropriate for negotiating than others.
You may want to hold off on negotiating consignment shop percentages if:
- You’re approaching a well-known consignment shop and are asking them to carry your products. They have the upper hand here.
- Your products have no track record of selling in consignment shops and you have no leverage.
- Your products have been in their shop for a while and don’t have a great sales record.
You may be in a better position to negotiate consignment percentages if:
- The consignment shop owner is approaching you and asking to carry your products in their shop.
- Your products are in high demand, you have them in several consignment shops/retail stores, and have a good turnover rate.
- Your products have been in the consignment shop you’re negotiating with and have a good sales record.
To negotiate a different commission percentage than the consignment shop is offering you, be prepared with facts.
If the consignment shop has been carrying and selling your products for the past year and over 80% of the product you provide them with sells, that’s good leverage. You may also point out if their requests for product have increased; this obviously shows demand.
You should also be prepared with the percentage you’d like to receive and/or are willing to accept. If you’re currently receiving 40% commission, you may let the shop owner know the other consignment shops you deal with give you 60% of each sale and you’d like to renegotiate your terms with them.
Also, have a plan for if they don’t accept your offer; will you continue supplying them with your products or turn your focus to shops that offer you a higher percentage?
The shop owner should understand that your negotiation is just a part of business but be prepared that playing “hardball” may tarnish or ruin your business relationship with them. If you can’t afford to lose them as a consignment retailer, approach the subject cautiously, or not at all.
Is Consignment a Good Idea?
Consignment deals are only a good idea if you’ll be profiting from the sale of your goods through the consignment shop. You should know your profit margins before you begin selling a product (if you don’t, check out THE SUCCESS PLANNER), which means knowing how much money is left after you deduct ALL of the costs associated with making and selling a product.
Your hourly wage must also be deducted to determine how much you’re profiting. If a consignment deal requires you to spend an hour driving across town to drop products off, then an hour back home, and then another two hours to pick up unsold products, are you still profiting after paying yourself for that driving time and gas money?
If you will be profiting by selling your products through a consignment shop, then you must consider if you’re profiting enough.
If you’re constantly getting over half the product returned, is the revenue from the products that do sell cover all your costs associated with dropping products off, picking them up, tracking inventory, and being left with (potentially) out of season, out of date, or shop-worn product that you must spend more time and money on to sell through other platforms?
Wholesale deals are better for a small business, as you’re guaranteed to be paid for the effort you put in. However, consignment deals are a good option if your business is new and unproven.
Consignment deals can also be a good opportunity to get your foot in the door with a retailer. They may not take the risk of buying your products wholesale when they’re unfamiliar with them and your business. But if you agree to supply products to them on a consignment deal for the first 3 months and if your product does well in their store, move into a wholesale deal, they may be willing to take a chance on you.
You may also be interested in:
- CONSIGNMENT VS. WHOLESALE (WHICH IS BETTER?)
- WHAT TO INCLUDE IN A CONSIGNMENT AGREEMENT
- CONSIGNMENT INVENTORY TRACKING SPREADSHEET
I hope this article has been helpful in understanding consignment deals 🙂