Thursday, March 20, 2008

Selling on Consignment

Many questions come up regarding selling on consignment. We have sold on consignment and can share some of the things that we have learned. There are many pitfalls when selling on consignment and it is important to make sure that you are well prepared and fully knowledgeable before you enter into a consignment sales arrangement.

First, what is selling consignment? Consignment is when you give your work to a shop or vendor and the shop agrees to sell your work for you for a percentage commission. This sounds great. You don't have to do anything but create and the store does all of the work to sell your work. Is it as good as it sounds? It can be. I emphasize can because there are many things that can go wrong.

Galleries are almost always working with artists and craftspeople on a consignment basis. If you want your work sold in galleries you need to be prepared to deal with selling on consignment.

The first thing to understand is that you are getting no money - nothing - until the item sells. When the item sells you will get X% of the sales price. Who decides what that percentage is? The store. Who decides the price? Usually you decide the selling price. Sometimes the store will work with you to set a price that the store feels will sell in that community. If that takes place, you need to make sure that you are satisfied with what you are going to get when the item sells. There is no standard to the percentage commission. On the average store consignment commissions range from 35 to 40%. The store gets 40% and you get 60%. Some stores and galleries want 50%. What you need to be prepared to do before presenting your work to the consignment store or gallery is pricing your work so that you will get what you want -and what you need to get to cover your cost of materials, your labor, and your talent.

You are going to be handing your work over to a store. There are no deposits given to you. One of the most important things that you need to have is trust in the store and the store owner. Meeting face to face with that store owner and seeing the store is very important in securing that trust for you.

You may be contacted by a "shop" by email or mail by an owner who is many miles away from you - perhaps thousands of miles away from you. The owner will present interest in your work and offer to sell it for you on consignment. You will be so thrilled about this prospect that you will be tempted to throw everything that you will learn here right out the window and immediately pack up your work and send it off with a smile. Who did you just send your inventory to? Mr. Uptonogood could send that email to you. Would you know that Mr. Uptonogood is looking for a carton of free merchandise? He could disappear into cybermyst and you will never see a dollar or your work again. If you consign to a shop that you have never walked into and with someone who you have never met fact to face, you take this very big risk. Of course, there are craft stores and galleries all over the country that sell on consignment with long distance artists. Those stores are well known, can be researched through local Chambers of Commerce, and are very reliable. Just know who you are consigning with before you jump to a long distance arrangement.

When you and the store owner have agreed that your work should be in that shop, you need to get specific assurances and understandings in writing that both you and the shop owner will sign. If the shop owner will not sign such an agreement, thank the owner and walk out. Here is a list of what you must have in your written agreement - and you must be satisfied with the agreement, along with the store owner.

1) The consignment commission percentage = x% to the store, x% to you. Be specific. List both.

2) The store is responsible to collect and submit all sales taxes on the total price of each sale - Not just the store's percentage. The store needs to give you a copy of the stores resale certificate so that you may account to your state's sales tax bureau for the work that is sold that you did not collect taxes on.

3) The store is responsible for each item if it is stolen, lost, or damaged while in the custody of the store. (The shop carries insurance for this and this is a generally accepted cost of doing retail business.) You are to be paid your percentage if an item is stolen, lost or damaged.

4) When will you be paid? Weekly, monthly?

5) How will the store notify you when there is a sale? Do you need to keep in contact with the store or will you get a call when you are going to get a check?

6) Relating to #3 above - in the event of fire, flood, disaster, etc. the shop is responsible for your items. If an item is destroyed or damaged you will be paid your percentage for that item.

7) If the store decides for whatever reason to take your work "off the shelf" and takes it off sale you are to be notified immediately so that you may come and take your work back. (There is no sense in having your work off display - you might as well have it to sell elsewhere.)

8) List every item that you leave with the store and its sales price.

9) Tag each item with a code number that corresponds to your item list (#8). The store needs to know what it is that has sold. Remember that stores have employees who do not always know what it is that they are selling.

10) Agree on an interval for restocking. Get new items to the store to replace those that have sold. Get those new items on the written listing.

With a written agreement you have covered all of problems that may occur. Business people are used to written contracts and agreements. These should not be of concern to them as long as the agreement is fair to each of you.

When your consignment agreement ends and you are removing your work from the store, make sure that you compare the inventory that you are taking out with your written list. Anything that is missing you must either have already been paid for or you must be paid for now. If there is a dispute - and the shop owner is not going to pay you, you are going to have to decide if you are going to pursue your loss legally. You will need an attorney or know how to file in your county's Small Claims Court. Here is another reason why long distance consignment may be a problem. Interstate law suits can be very costly. You must hire an attorney in that state to represent you and you may need to appear in that state during the court proceedings. This is with great expense.

Should you sell on consignment? If you have taken all of this advice and followed it, then yes.
I have turned wood jewelry on consignment in a gallery right now - and selling for more than I sell it for on-line. Our Ma Bears (c)(tm) sold well in a gift shop on consignment for several years at a price much higher than we were selling them at the time at craft shows. We have though in the past had a problem with a fancy shop that had two expensive artworks of mine for sale on consignment - despite covering the bases and knowing the shop and owner. One day we found that the shop was closed and gone and so was the owner. I never saw those pictures again or any money. It is a tough lesson to learn. One that may be unavoidable if it happens as business documents do not always lead to the location of the actual business owner.

If you want to sell your work, selling wholesale is far superior to selling on consignment. You have your money up front and you have no risk. If you are asked to sell on consignment, suggest selling on a wholesale basis instead - suggesting perhaps a better profit for the shop. If the shop does not want to do this and you can come away with an agreeable consignment arrangement then go for it!

19 comments:

Wonderfully Sew Knit said...

Great advice!

industrialpoppy said...

I think that this entry has given a ton of info for those looking at consigning. It does require caution, and for many of us I think that we tend to be a little too trusting, perhaps just too excited to be featuring our work, and neglect to get every last detail in writing. It's important to remember that it's OK to be professional at all times, it does not make us seem untrusting. Great advice!

Brian said...

Great consignment advice. In terms of wholesale pricing, what would you recommend? My wife has a sea glass jewelry business and has a couple of stores interested in purchasing some of her pieces at wholesale prices. Compared with other sea glass jewelry makers, Liane's prices are very reasonable. Is a 20 percent discount reasonable? Should it be on a graduated scale -- say 20% for the first dozen pieces, and 25% for more than a dozen. I realize that the store will likely mark the pieces above what Liane sells them for, and some of the literature out there recommends selling at your regular price, but what's the best practice for one-of-a-kind hand-crafted jewelry? Any advice would be most appreciated. Thanks in advance.

Robert A said...

Please see my two part article in Feb/March 08 on selling wholesale. The store is going to double the price that you sell your items to them for. They are expecting a 50% price reduction from retail. They will also expect to have to purchase a minimum number of pieces or meet a minimum total cost to have this. As is written in my two part article your retail prices should not be far from what the store would sell your work for - or you are underpricing your work. I would be very surprised if a retailer would purchase wholesale for a 20% or 25% reduction.

You have to start thinking in terms of a quantity sale is worth the discounted cost. Often it is cheaper in time (if not in expense) to make ten of something than it is to make one.

All that said - read the two part article. You will learn all about selling wholesale.

csven said...

I'm curious if there is information available on the commission percentages being charged by online galleries; perhaps a chart of some sort listing fees, percentages, aso. From what I've found so far there is a hesitance to openly state a number or range of numbers.

Any help appreciated.

Christine Bean said...

Hi! Just a quick note...this post, Selling on Consigment, is going to be featured on www.crafterscalendar.com on Friday, June 13, 2008. Thanks, Christine Bean

Monica and Jessica said...

HI ROBERT,
Again a very informative article, thanks so much. Will keep reading the other 2 articles about selling wholesale. Will recommend your articles in our blogs. All the best and keep up the good work, Monica and Jessica from www.craftybeesisters.etsy.com

starrynightimpressions said...

Whew, this post is really helpful.
Seasonalvignettes from etsy gave us this link because I have an opportunity to put some commissioned pieces in a local shop. 60/40 commission, but I think the 60 is theirs. So this really helped me think about if I want to do it or not.
thankyou,
starrydeborah

Fiorela said...

Very helpful,specially for newbies like me selling in consignment..thanks!

Anonymous said...

I've been an artisan for over 30 years have consigned, rented and wholesaled for over 15 years.

Like them all depending on location but prefer consignment over the others. I have found that rental is my least favorite so far, mainly because it seems once my product is in the shop even as a remote vendor my products are not taken care of and there is more breakage and lost items ... etc.

Any store owner wanting to take 50% on consignment needs to consider wholesale ... period.

I have a set price in my mind as to what I want for my product and if someone takes 40% my prices go up accordingly. There are even shops out there that take 20% usually those are ones where there is an artisan owner and they want other products to fill their shop and know that variety is going to attract more customers.

It's great getting the checks in the mail and can be a wonderful addition to your income once you get it lined up.

Yes, your going to get burned once in awhile but to that, follow your gut instinct ... you'll feel it when something just doesn't seem quite right and follow through on your end too. Don't leave a shop owner hanging when they want more of your product.

Kylie B said...

Thank-you for that, Fantastic Post!

KFM Gallery said...

lots of great information.. thanks!

RaNDoMLeiGH said...

I have owned a store before and had people bring things in on consignment. For the most part, this worked beautifully for all involved.

There are some things I want to address, from a shop owner's point of view.

First, it is really important to check on your stuff on a regular basis. Most of my consignees were happy to come in once a month to see if there was any money to pick up. I was on a tight cash flow for quite a while, but when someone did not pick up their money for months I was tempted to use it to pay the rent or buy other product. So pick up your money on a regular basis.

Second, it is important to make sure your items are not getting shopworn or otherwise messed up. One consignee had some herbal things that evidently had moth larvae in the herbs and over time the moths ate her little dream pillows. I was stuck sealing them in a ziplock and leaving them in the back room for months. This brings me to...

Third, if your contact information changes you really need to let the shop know how they can reach you. I eventually came up with a contract for the consignees so they would know that if I had tried to get hold of them and their info was bad, their stuff became my stuff and they forfeited any money they may have earned.

Finally, it really helps the shop if you tell people you have stuff on consignment and send them in to buy from the shop. It's good business to promote someone who is giving up their selling space (for which they have to pay rent) to your product. I could have filled the shelves with things I bought and got to keep all the profit on (I did a 3x markup which is what most retailers have to do now to cover shipping and overhead). But I chose to dedicate part of the shop to local artists and crafters so they could try their stuff out via consignment.

I asked them to also provide a price where if I wanted to buy the items outright for wholesale I could (my privilege as the owner). I also had an agreement that if some schmuck brought her little kids into the shop and they tore stuff up while nobody was looking, the wholesale price would be paid and the item returned to the consignee (NOT the consignment price). I was not going to try to collect an insurance payment for a $20 item. I also didn't feel it would be fair to penalize me as a store owner for something the customers did. I am not a babysitter and if some kind of damage occurred to my own products, I had to eat the cost, but if it happened to a consignment item I really didn't feel it was fair to have to pay out the whole amount. So we had a price that both of us thought was fair, plus the person would get their stuff back.

One of my regular consignment customers, who often brought in Lorena McKennit CDs, crystals, metaphysical books, and witchy stuff got mad at me because I didn't want to put a bunch of alien-themed stuff in my new age gift shop. Remember that the store belongs to someone else who has a vision or at least a set idea of what their product line should be. If there isn't anything in the store that is like what you have, maybe the shop owner wants it and maybe they don't. But don't feel bad if they decide that your product doesn't fit their market, and if you are thinking of dramatically changing what you usually bring in, ask them before you go to a big effort or expense to acquire supplies or product. Aliens just weren't my focus. She finally understood but it hurt our relationship because she'd kind of started thinking that she had some kind of say in what I carried.

I hope this helps a little. This is a really tough economy right now and consignment can really help out the stores. But you have to do your part to help sell your product, to make it easy to deal with you as a consignee, and to respect that the store still has to pay rent on the space you are borrowing.

Robert A said...

Thanks to the above for the great points from the shop owners point of view on consignment.

insanemother2 said...

Very informing I am learning so much reading these articles

Cottoncakesbymm said...

Wow!! Thanks everyone for the great info, it has really helped me get a good idea where to go from here with putting out my products on consignment!!

bmsbiz said...

Thank you! I am interested in more info from anyone who has run a business or has consigned their products.

sydneysculpture said...

I find it really hard to find any shops in Sydney that would agree to sell artworks on consignment. Particularly sculptures. I used to do that through about 10 - 15 different places, but now have only one shop left. Most are just not there any more. Can anyone suggest something.
Thanks.

Anonymous said...

Thank you for this whole page. Ive put out the initial shop feelers and I start my consignment products tomorrow. This had been a great little last minute hit of knowledge