Consignment shops offer a variety of products for resale. Anything from furniture to clothes to original artwork by a local artist may be found on consignment. Often viewed as a way to make extra cash, consignment shops rely on goods from others in order to stay in business. This means it’s imperative to turn a profit. How much profit will be determined by the shop owner’s payment agreement with the seller. The owner may have one set agreement or may potentially have a different agreement with each consignor, according to their goods.
According to Dictionary.com, to consign an item means “to hand over or give into the care or charge of another; entrust.” Consignment shops are essentially taking care of items delivered to them for the primary purpose of selling on the consignor’s behalf per a contractual agreement. Once the item or items have sold, the shop owner, or consignee, pays the consignor the agreed-upon price for the sale. When the items fail to sell, the shop owner must comply with what was agreed upon in the consignment contract. Typically the merchandise is either returned to the original owner or donated to charity.
Both parties in a consignment arrangement desire to make a profit. How much profit either of them makes will depend solely on what was agreed upon and included in the contract. Therefore, negotiating at the beginning is ideal. The consignor should conduct research on rates charged by other consignees, as well as how to appropriately price the goods she's consigning. This knowledge will prove valuable when negotiating payment with the shop owner. During the initial negotiation, the two parties will also decide whether the consignor will get paid up front or upon sale of goods.
Quality is Key
Because both parties wish to make a profit, pricing the items to sell is crucial. Selling items that are in high demand, unique and in excellent condition will result in higher profits for both parties. In addition, luxury items command greater returns. Better-quality products breed higher profits for both parties.
A consignment is an agreement between two parties that should always exist in writing. It is not a good business practice to have a verbal agreement only. Everything that is agreed upon during the negotiation process should be included in the final contract. This should include: the items being consigned and their prices, the commission of the consignee (can be anywhere from 30 to 60 percent), what happens if any of the items fail to sell or are damaged, and how and when the consignor will receive payment.