How Does Consignment Work?

How does consignment work? Here's how craft business owners can partner with retail shop owners to sell handmade products. Pros and cons of selling crafts this way and what to include in a consignment agreement contract.

Craft business owners can partner with retail shop owners who agree to sell the craft artist's handmade products in their shop. You, the craft artist, (the consignor) provide the product. The retailer (the consignee) provides the sales venue. 

There are pros and cons to consider before you decide to dive into consignment selling, but, under the right circumstances, craft consignment can provide a welcome opportunity to grow your handmade business. 

What is the difference between selling crafts on consignment vs. selling crafts wholesale?

What are typical consignment rates?

Craft consignment rates can vary, but a 60/40 split is quite common, where 60 percent of the product's retail sales price goes to the craft artist, and 40 percent of the retail sales price goes to the shop owner. 

While a 60/40 split is common, there are several factors to take into consideration when you negotiate consignment sales terms with a retail shop owner. 

Why would a craft business owner enter into a consignment agreement instead of selling wholesale?

Some craft business owners are completely opposed to consignment selling, and they raise some good points. 

Consignment arrangements are more complex than wholesale. There's more that can go wrong, and you'll need to spend more time managing the arrangement. 

Your inventory will be tied up at the retailer's shop, which means you won't be able to sell it at craft shows or online.

Some craft artists have had bad experiences with retailers who lost their items or returned items damaged. You're trusting the retailer to care for your products, and there's a risk you will not receive compensation for lost or damaged goods.

A retailer who has wholesale products in her shop may be less motivated to promote your consignment products because her greatest risk and reward often comes with selling the wholesale products in her shop.

Other craft artists have developed positive and mutually beneficial consignment arrangements with retailers and are happy with their craft consignment agreements.

How does consignment work for craft business owners?

You and the shop owner may find ways to mutually promote each other's business. 

If the shop is a great fit with your products, it can introduce your brand to a new group of customers who might not have otherwise found you.

If your long term business goals include selling to wholesalers, consignment sales can help you develop a track record of successful sales data you can present to other retailers, providing evidence your product sells well.

Selling wholesale means doing business on a whole other level, and maybe that's not what you want for yourself and your craft business. If you want to sell your products in local shops while maintaining a smaller scale business, a consignment arrangement can help you accomplish that goal.

Is a particular retailer and shop right for you and your business?

Consignment selling is a partnership, and you'd be wise to assess each situation carefully to determine if it is the right fit for you and your business.

Negotiate the details of your consignment agreement

Selling crafts on consignment is typically more complex than selling wholesale. When you agree to provide your crafts to retail shop owners to sell on a consignment basis, to some degree, you are entering into a partnership with the shop owner. 

There's more to be negotiated and tracked with a consignment arrangement, and that means there are more things that can go wrong.

The more clearly and thoroughly you communicate and negotiate those terms ahead of time, and in writing, the better chance you have of building a positive, mutually beneficial relationship with the retail shop owner. 

You can find a sample craft consignment agreement form here if you need one.

Craft consignment terms you'll want to work out with the shop owner include:

1. How will your products be displayed in the retail shop?

Will you provide display stands and set up the display yourself, or will the retailer provide stands and create the display? A well-established retail shop owner might have clear ideas about the visual merchandising strategies she uses in her boutique and might want take full ownership of creating a display for your products.

On the other hand, if the shop is new, or your product is new to the retailer, she might not have display stands designed to show your items at their best. For example, if your handmade jewelry is the first jewelry a retailer has sold in her shop, she might not have necklace busts or earring stands to show your items properly. In that case, you might be asked to provide displays for your product.

The retailer may ask you to set up your display within her shop. While creating the display yourself will be more work for you, if you're working with a local shop, it can be positive for you to arrange the display yourself. If you have plenty of experience creating a display booth for your products at craft shows, you'll know better than anyone else how to make your products look their best. 

2. Where will your products be displayed?

Will your products be featured near the front of the shop or in another high-traffic area, or will they be placed in a dark back corner of the store? The location of your products within the shop will have a big impact on your sales.

3. How will store-wide sales be handled?

If the shop owner holds a store-wide sale, will your product prices be reduced as well. If prices are reduced, how will that change be reflected in the percentage of the sale price you receive? For example, if you negotiated a 60/40 split, will you still receive 60 percent of the original retail price, or will you receive 60 percent of the sale price?

4. Are your items protected from theft or damage?

What will happen if your items are stolen or damaged while under the retail shop owner's care? Will your products be protected under the shop owners business insurance policy?

5. How will inventory and items sold be tracked?

The need to track consignment inventory on hand and items sold makes consignment arrangement more complex than straight wholesale. How will shop owners track your inventory and sales, and how will you communicate that information with each other?

6. How long will the shop owner keep items?

At some point, unsold inventory sitting at a shop becomes a disadvantage for everyone. The shop owner will want to replace the product with something new, and you will want an opportunity to work to sell that item in a different venue where customers may be more receptive to the product. 

A written consignment agreement can help ensure these details and others are spelled out clearly and prevent disappointment and miscommunication. The shop owner you work with may already have a consignment agreement. If that's the case, be sure to read it carefully before you sign. Ask questions and negotiate if there are terms that are not clear or not acceptable to you.

If the shop owner does not have a consignment agreement, you can find a sample consignment contract for crafters in Business and Legal Forms for Crafters/