Selling Consignment vs. Selling Wholesale

Selling direct to retail consumers can be deceptively tricky. In addition to crafting, arranging, and selling, you also have to worry about marketing, branding, consumer outreach, the cultivation of brand sentiment, and more. Put it this way: if you were running a restaurant, this would be like being the chef, server, maître d', and interior designer all in one. There’s got to be an easier way, right?!

Well, there is. Two, actually! And both come with their pros and cons. 

If you want to focus more on pure selling and less on the marketing aspect, consider selling your products via either consignment or wholesale. Here’s a quick 101 on what each of these terms mean!

Consignment is when you place a smaller selection of your crafts in a local brick and mortar shop to market and sell. When the product sells, the store owner keeps a percentage of the money and sends the rest to you. They worry about marketing and branding so you don’t have to, and you worry about the creation of products and keeping inventory full so they don’t have to. It’s a win-win...as long as the items you have placed sell!

Wholesale is when you sell larger amounts of your product with payment remitted up front. You don’t have to wait for a product to sell to the end consumer before you make money on it but you will need to be prepared to make 1-3 products over and over...and over!

So, which is right for you? Well, that’s as subjective as it is situational. Let’s take a look at the pros and cons!

Consignment

Advantages of Consignment

• Since you’ll be setting up a smaller selection of product in a local businesses, you’ll get a test opportunity in your market. You can see what sells vs. what doesn’t, more or less risk-free. If the product doesn’t sell, you’ll be out money, sure. But you’ll gain greater insight into your customers and store owners won’t have lost money on investing in you.
  
  
• Because of the above, this is a safer way of building business owner trust and rapport, which could lead to bigger, more profitable relationships in the future.
  

Consignment Challenges

• Consignment is lower-risk, but also potentially lower reward. You’ll be selling just a few pieces at a time, so income could be a little constrained. You also don’t make any money if a product doesn’t sell at all. And once a product goes out of season, that’s a sunk labor cost for the year.
  
  
• With consignment, you’ll be saving time on things like marketing, branding, and outreach. But this is sneaky – this isn’t really time you can reinvest into crafting. It becomes reallocated to relationship management with your store owners. As a result, plan for a significant amount of running around.

As a general note, you’ll need to work out the sales percentage breakdown with your store owners when a product sells. Many will have set numbers, likely around 30-40% of the sale they get to keep while the remaining 60-70% goes to you. In some cases, the consignment shop will instead charge a monthly rental fee or a rental fee plus small commission percentage (5-10% of sales) to help with things like overhead and/or credit card transaction fees. When it comes to these percentages, you really need to look at how you price your items (check out this blog for help determining pricing/margins) to ensure you will still be making a decent profit on anything sold. When it comes to rental fees, you need to think about your sell through rate and what number you have to hit sales wise in order for the consignment agreement to be profitable/worth your time. 

Wholesale

Advantages of Wholesale

• You get paid upfront for your product so cash flow is guaranteed.
  
  
• You’ll sell higher quantities of product, which should also positively impact revenue. You can also set order minimums for greater control into your predicted income.
  
  
• Because store owners pay up front, they’re more motivated to sell to cover their costs and drive a profit. This level of motivation won’t necessarily be present in consignment sales.
  

Wholesale Challenges

• The flipside of sellers being motivated is that there’s the potential of sunk cost on the store owner side. Store owners are buying up front, so if your products don’t sell, they’ve lost money.
  
  
• Taking this further, if store owners lose money, this could create significant challenges in relationship management. If you’re a partner that lost revenue for a store, it could be harder to get another chance, meaning that wholesale could be one-and-done if things go poorly.
  
  
• Generally, you will be wholesaling 1-2 of your best sellers. Meaning, your creating process will likely move into an assembly line style of crafting and you will have much less creative freedom in order to duplicate those products. 

Expect wholesale prices to be roughly 50-55% of expected retail sale prices. This gives retailers the opportunity to make a profit on your product. Again, pricing your retail items appropriately will guarantee you are still able to make a profit on your products.

So which is right for you?

As you can see, there are pros and cons here, so this is something you’ll have to navigate yourself. Consider your market, your desire to manage customer relationships, and your relative level of risk aversion. 

As a very general piece of advice, consider starting relationships with consignment, then moving store owners up to wholesale once trust is established and confidence over your sell through rates and how scalable your product is in your market is clear.

If you need more clarification, feel free to reach out to Maggie Cullen (#2) at wholesale@ohyourelovely.com!