Consignment, what is it?
It's a way to make your products accessible, outside of your online store or website. Your creations are sent to a store and sold on your behalf. Your target customers therefore have access to your products without paying shipping costs in addition to being able to touch them and see them in person. Nothing sells better than having the product in your hands!
However, you should know that what you send will only be paid for when the store has sold your product . You will therefore have to pay for the materials needed to make your products before you sell them, but don't forget that consignment will open a lot of doors for you!
Of course, there are several points to check before starting! And although it seems very simple, it can quickly turn sour if you don't take the time to think of everything.
Rest assured, I will guide you through all the steps!
1. How does it work?
First of all, you must research stores that appeal to you and that offer products of the same type as yours. For example, a store specializing in children's products or zero waste.
Make a list of your favorite businesses and keep this list in order to contact them if necessary. Also take the time to see if products similar to yours are already there. For example, a shop that already has candles may not want to have more. It's not impossible but not common.
Prepare an information document to “ sell your salad ” including:
- your story ;
- your business description;
- photos of your products;
- a price list;
- the different ways to contact you;
- your approximate tailoring time.
Why this document? Because all the shops that have a storefront receive tons of requests and you have to stand out to have more chances!
Then come the time to contact the merchants that interest you, either by phone, email or even better, in person!
Think of a few sentences to introduce yourself to the owners. Why did you choose their shop, who are you, what do you do, etc. You can immediately send them your information document if you send them an email and if it's by phone, ask for an email address to send to them.
If you don't hear from them afterwards, you can contact them again about 1 week later. You don't want to call them back too soon and sound a bit nagging or too late and lose the ' momentum '
Now, when you discuss with a shop, you will also have to discuss THE MARGIN.
2. What is the margin?
This is an amount X that the shop will keep to sell your products. This margin is used to " thank " them for offering you this visibility, but mainly to pay their administrative and sales costs such as advertising, sales consultants, etc., to give only these as an example.
The margin to offer (or the one that will be asked of you by the shop) is very variable and depends on several factors. A high-end boutique located in the heart of Montreal could easily ask for a 45% or 50% margin versus a small boutique located in the region could ask for 25% or 30%.
Ok, but concretely?
Let's say you create candles at a retail cost of $25 and the margin is 40%. So that means $15 will go to you (60%) and $10 to the store (40%).
It will be very important that the price of your products is calculated in the right way if you don't want to lose all your profit. The question to ask is therefore: is the $15 that comes back to you high enough to cover your material costs, your administrative costs and your salary?
You can read an article about calculating product costs right here or learn how to calculate the price of your products with this training!
When the margin percentage is established, I strongly advise you to set up a file with all the information of the store (Name, address, telephone number, email and the margin) this will be your reference when the time comes to invoice the store rather than rummaging through your 83 emails!
3. Monitoring and invoicing
It is also necessary, from the start , that you validate with the shop what will be their way of monitoring sales. You have WIDELY the right to demand a document or a simple email to know in detail what has been sold in the last month.
You don't want to end up with an Interac transfer of X amount that doesn't match any of your products and look for the match (experienced fact here) . This remains accounting and it must be done well!
Usually, each store reports the products sold at the end of each month. This is when you can send the invoice to the merchant. Don't forget to add the margin discount!
Let's say 40 candles at $25 = $1000 - 40% margin = $600 to charge.
Some important points:
- You should know that, most of the time, the shipping costs are the responsibility of the craftsman (you!);
- If the store is not too far away, you can very well go and deliver the order yourself! So it's important not to put shipping costs on your invoice. Unless, of course, your agreement says otherwise.
- I also advise you to add to your point of sale file, the inventory that you send to the shop . It allows you to make statistics on the best sellers from one store to another in addition to chasing them up when you see that their inventory is low: are they interested in more products? Do you have any new things to show them?
Once a quarter, you can also ask them to confirm the inventory they have on hand. You can therefore compare with your notes and see if your follow-up is good or if an article has not been paid for.
- These notes and reviews also allow you to validate if these points of sale are the right ones for you and thus review certain points with them or in your strategy such as: were there any sales? Have they talked about you on their social networks? etc
4. The contract
Any good agreement between merchant and craftsman must be put on paper! VERY IMPORTANT !
This is what protects both parties in the event of changes or glitches along the way. Because, yes, it happens! Some shops have their own contract already drawn up, ready to be completed, while others will require you to provide your own contract.
Like any good contract, it must include basic information:
- the name of the consignee (the shop);
- the name of the consignee (you);
- the coordinates of each;
- the date and place of the signing of the contract.
Then comes the (very important!) list of small details to consider:
- The established margin
- Respect for the product, the brand, the name and the branding (You don't want a shop to remove your labels, that's what happened here!);
- Mention that you remain the owner of your products as long as they are not sold. For example, if the shop has to close, they have to give you your products;
- Indicate that you have a non-competition rule, that is to say, the merchant does not have the right to produce the same product as you and then remove your creations from his shop. You secure your spot! ;
- The shipping method and who pays for it;
- What happens if your products are stolen or broken;
- Do you offer the possibility of exchanging items (Products out of season or less good seller);
- The duration of the contract ;
- How to receive the sales report, how you send the invoice and how you will be paid;
- The signature of the consignee and consignee.
Although the agreement may be drafted by a lawyer, any document that includes the signatures of both parties is considered a contract.
5. Consignment : good and bad !
- Good visibility;
- Allows you to get known;
- Offers multiple ways for customers to purchase;
- Your products can travel very far from your home.
- Requires investment to cover expenses;
- Not always choice on the location of the product in the store;
- Requires organization and close monitoring of each point of sale.
6. Point of sale “on purchase”
It also has the option that the shop buys your products directly in order to sell them. This involves the same steps.
(Research, discussion, agreement, contract, invoicing)
The big difference is that once the shop pays for the products, you have to design them and send them, just like you would for a customer, but without the management complexity.
It can also be very advantageous to offer a better margin to the shops that buy. It's a win for everyone! The entire invoice is paid before starting and the profit for the shop is higher.
It also happens that merchants start on consignment and after having “ tested ” your products with their customers, decide to buy the next orders. To this option, we say yes!
- Search for businesses;
- Produce the information document;
- Contact the businesses and relaunch them;
- Build the follow-up document;
- Write a contract;
- To take orders ;
- Produce and send the items;
- Note the inventory sent;
- Register on your website and advertise your new point of sale on social networks;
- Invoice the merchant monthly;
- Follow up after 3 months;
- Assess each point of sale and its viability.
You have questions ? Do some things seem blurry to you?
Don't hesitate to let me know in the comments!
It will be a pleasure to discuss it further with you!
2022-06-20 Written by Justine Doré-Champagne
2022-06-26 Last Update by Stéphanie Therrien