Consignment Pricing Structure

[azrider]

I was recently contacted by a business owner who would like to have some of my items on consignment. I hesitate about consignment just because it means they have inventory that they have no ownership in, so it doesn’t matter if it gets damaged. I also have no guarantee that it will be placed in the store in way that will help it sell. The stores I have been dealing with charge 25% for consignment. That said, I do have items on consignment in a few stores. My items seem to be pretty low volume sales.

The retailer that contacted me is interested in consignment, but with a different pricing structure. She wants to do a 10% consignment fee, and a $10-30 per month fee, based on how much shelf space the items take. This is a brand new store, so I have no idea what traffic and sales volumes would look like. The store will be in a historic downtown location in a medium sized town, and carry all handmade items, most from within Kansas. (I am intentionally not giving the name of the business or town, but it is over a 3 hour drive from me, so I won’t be able to check on my products.) Has anyone heard of this type of consignment arrangement before? What are your thoughts?

[bruce johnson]

If they are only getting 10% to sell it, but $10-$30 a month to rent shelf space then they really have no incentive to sell it. The longer it sits, the more they make. The only way this would work is high dollar things that don't take up much space and sell themselves within a month.

[Spinner]

I have to agree with Bruce on this one. Back when I was producing woodturning "art pieces" I dealt with several galleries around the US, some consignment and some commission. As I learned the ropes I found that the ones that sold my work the fastest and for the best prices were the ones that made the most commission percentage.

Places that want to charge a "consignment fee" aka RENT, literally have no incentive because they make more by storing your pieces than by selling them. They'll usually write in a 30-90 day rotation clause as well meaning items that don't sell need to be swapped out periodically. They do this so it LOOKS like they are selling & getting new stock in even if they don't sell a thing. All the while they are making their rent and you have inventory locked up in a dead space.

Average commission for a consignment shop will range between 25-50% and they should have someone on staff that knows your product or they should ask you to educate one of their sales persons specifically. They should also have a good idea of what their target market will bear for certain types of items and be able to help you set prices so both sides still make money after commissions.

[WinterBear]

I've talked to too many people who have stopped doing consignment because it is often more trouble than it is worth and they often wind up with unsalable product, if they get it back at all. I've heard of store that charge "rent" and then never display the items, or stuff them into an overcrowded shelf or bin in the back of the shop, often in a dim and uninviting area. Unsold items coming back out of rotation from the shop, but coming back stained, scuffed, scratches, missing parts, etc. Items that were "stolen" out of locked cases. Items that were excessively handled and soiled. Silver allowed to tarnish. Long items being allowed to drag on the floor and being stepped on and damaged. Long waits for payments of things that had actually sold, even if payments were supposed to be monthly. The stores accepting a returned product after the customer had damaged it, and then returning the damaged item to the artisan who cannot now sell it (one particularly bad one was where the customer had shut the purse strap in the car door, and the purse was dragged along the street for several miles. The store accepted the by now badly scuffed and scarred purse and gave the woman the money back, and the purse was sent back to the maker--maker lost a salable item, lost the consignment fee when the item was sold too).

Now of course most of these folks had contracts with the store that was supposed to cover theft and damage while those items were in the store, but collecting was another thing, especially for the shops out of town. I also know of two separate instances where the store closed and the items were disposed of without the knowledge of the consignors (theft on a grander scale, but still hard to get it prosecuted).

So the people I know, instead of paying a consignment fee of 40-60% will offer to sell to the store owners at a wholesales price--like 50% off the retail! If they really want your item that much, they will do it. They still get the item they want, they get their cut, but they are now invested in protecting it and displaying it so it will sell--and you get your money up front and don't have to worry about the items being damaged. Even if offering the item at a wholesale discount will not make you quite as much as getting your percentage after a consignment sale--you have the money in hand and will have no issues with lost or damaged product because it is now the store owner's problem to worry about it.

If you want to consign, screen the places. How much are their fees--Does it sound too good to be true or does it seem greedy? Talk to other consignors if you can (best if you can do so without the owner's knowledge). What are their opinions? Do they feel it is a good relationship with respect and satisfaction on both sides? Or do they have problems with getting their money? Are you able to walk into the store at any time during normal store hours, unannounced, and see your items? What is the clientele--Is it a suitable match for your product based on the other items in the store and the customers? Are consigned products displayed beautifully and correctly lit--and just as well displayed as the store-owned items? Are the displays clean? Are the items in the store windows sun-faded? Are the salespeople knowledgeable about hand made products? Do the sales clerks wipe fingerprints off before putting items back in the cases (prevents soiling and tarnish)? Are fingerprints cleaned off the glass display cases and any display features dusted? Will your items be protected from excessive shop-wear and shoplifting?

[bentley]

Never gave consignment much thought before but thanks for all the knowledge from past experiance. Sounds like a lot of work for very little pay back, even if you have a good selling product the store is making most the profit. Great information for us less experianced professionals, think I will stick with custom orders.

Edited August 23, 2011 by bentley

[azrider]

Thank you. I think Bruce and Spinner nailed why I was not comfortable with this setup. This store's business model is based on two income streams, rent and commission. With no incentive to really sell my stuff, and me knowing how long it takes my leather work to sell in other consignment settings, I see me paying more rent than I would get in sales. The other part I am having trouble with is this is a brand new store, so there is no track record to look into.

Winterbear, I have been really selective about what consignment I do, for the reasons you mention. I think this particular opportunity would be better to offer them wholesale. They may not have the capital to buy it outright right now, but it makes more sense for me. Especially since they are asking me to make a type of product I don't have in stock.

Mark, not all consignment set ups are bad. I have dog collars in a local vet's office that have been slow steady sellers for over a year now. The vet takes care of my collars, and has a policy of any item a dog chews, the owner buys. Depending on the seller, consignment can be a good way to keep a little money coming in.

Still curious, is the rent plus commission a common thing?

[WinterBear]

azrider, I can't speak for everyone, but the only place I see both rent+commission as being fairly common in the Northern Colorado/Wyoming/parts of Utah area is the big "booth" flea market stores and antique stores around here. I don't know if this is common in other areas of the country, but this seems to be the only place I have seen it. What's more, consignors that pay "rent" often have to provide their own displays, as well as clean and maintain the booth. It's not something that I have seen in the gift stores and boutiques that do consignments--these stores seem to get their money only from the fees, and the store owner determines the square footage and location of the items in the store. I haven't done consignments in the past 5 or 6 years though, so this could be the new thing.

Mark, consignment can work, but you really have to screen the people you want to consign with. When it works, everybody is happy and it's a great way to get your product to a larger market. My examples are when things go wrong. A good artisan status in the area and town (e.g., being an area known to have high quality handmade items among the tourists and townspeople), a good and legally binding contract, and well-established stores with an interest in maintaining a good reputation among the artisans they consign from all help, as do laws with teeth regarding consignment theft and contract enforcement.

Edited August 23, 2011 by WinterBear

[Spinner]

Still curious, is the rent plus commission a common thing?

It's definitely not the norm for established galleries that know their clientele. Typically you'll see a rent structure with shops that are either new and don't know how sales will be but want to make sure they make their own rent payments or simply don't know the product(s) and can't gauge how well they will sell.

Again, it's about incentive to sell your goods, if they're already making more in rent than in sales why would they want to sell anything? A good, well established gallery will generally be able to mark your items up 100% above what you want for them and still make the sale and do it on a consistent basis. This is why they can command 50% consignment fees.

Past example: October '07 a local gallery on the West Side (L.A.) loved my salad bowls, wine stoppers and Xmas ornaments. They called, I came in and we talked and I gave them my 'retail' prices. A week later they had the amount of stock they wanted, doubled all my retail prices and sold out by Christmas. They got their 50% consignment fee, I got my retail price and everyone was happy. At the end when I stopped doing those kinds of pieces, they had become my biggest "client" for three years running but it had taken me 4 years to get their attention.

Long story short, take your time and find a good place to show your work and in the meantime build a rep through custom work. Entering judged and/or juried exhibits is a great way to gain attention as well.

[pacopoe]

Sounds like a bad deal to me. Over the years I've found consignment to be more trouble than it's worth. There are a handful of places we'll do it and that's mostly as a favor to good friends who don't have the capital to buy our stuff outright.

Sell it straight our at wholesale prices. If you're just starting out then you can't afford to have your stock just lying around not making money for you. If you do chose to do consignment, set up a log where you call and check in weekly/monthly with the business. A lot of times they'll straight up forget to pay you or spend your profit on keeping their heads afloat, especially if it's a new business.

Good luck!

[Kcinnick]

I saw this topic when searching for a pricing structure. I guess I don't have as much mark up in my products as everyone else. I have two shops that want to carry my gun belts. My prices range from $75-$100 depending on size and style and I was thinking giving 12.5% commission on consignment and special orders and 25% off for wholesale pricing.

Am I way too low on my percentages. I really don't need to sell out of shops, I am selling everything I make, but having more orders tends to motivate me to make more.

Thanks for your input.

Nick

[azrider]

One of the big disconnects I still have is what I think something should be priced at for retail, and what people are willing to pay. When I broke down all my prices I was wanting to sell stuff at, I realized I was doing the work for under $3 an hour. There is a great series of articles in the Leather Crafter's and Saddler's Journal right now about how to properly price your products. They are based on a book, and it is worth getting. I found if I have my retail prices set correctly, I can sell at 50% of that for wholesale, and still make money from it. (Not that I am there yet, but I am getting closer.)

[Kcinnick]

One of the big disconnects I still have is what I think something should be priced at for retail, and what people are willing to pay. When I broke down all my prices I was wanting to sell stuff at, I realized I was doing the work for under $3 an hour. There is a great series of articles in the Leather Crafter's and Saddler's Journal right now about how to properly price your products. They are based on a book, and it is worth getting. I found if I have my retail prices set correctly, I can sell at 50% of that for wholesale, and still make money from it. (Not that I am there yet, but I am getting closer.)

I could sell my products at 50% off and still make money, but I won't work for that little of money! By time you figure out I have two Herman Oak straps, 2 Chicago Screws, dye, thread and a buckle I would only be getting paid around $15-$20 to make a belt, and the guy selling it would be making $35-$50 for selling it. I have plenty of interest in my products, and don't need to sell wholesale, but I wouldn't mind a steady order of product even if it meant giving a 25% discount, a 50% discount is a little too much.

[DoubleC]

I just saw this topic, and it's so relevant to what I'm trying to do. When WinterBear, Bruce, and oh dag forgot first one, they mentioned items not being displayed right, or properly taken care of. People here and my VOW worker said I would want to be especially conscious of where and how my things were displayed. I made up two floor displays, two counter top displays, and WinterBear, always modest, didn't mention that she made me two hanging displays. If you do consignment, try and gently convince the shop owner you'll do them the time saving work of making the display. Two examples, counter and one of Winterbear's hanging displays.

[horsewreck]

I saw this topic revived and would like to give a few scattered thoughts on the subject. We have some consignment stuff in our store, some wood work, candles, western art, and we also take saddles on consignment from regular customers. We charge from 20 to 40% commission and don't charge shelf space rental.

On some our consignors, we are their main source of sales even though they do shows and have stuff in other stores. One couple we've have been selling for along time will bring in their stuff price tagged at their usual markup, (which is to cheap) my wife will reprice it and put it in stock. We have been charging this couple 20% because they have been with us a long time, but the long and the short of it is they net more on their products when we sell them than when they do.

When a craftsman considers consigning as a sales method they need to take their time, find a place where their stuff "fits" and be willing to pay a fair price for someone marketing their product. Never ever pay rent on a space in a shop because the owners are in the space rental business not the sales business.

Taking consignments allows shops like ours to have a well rounded stock to sell from without having our money tied up, and I would never consider charging a craftsman storage or floor space. A good set of consignors make us look better and improves our bottom line, while doing the same for the consignor. Plus they can stay busy making stuff and don't have to maintain a store front, which is a whole nother can of worms.... JEFF