Sourcing inventory can be a fun but challenging process. What if there aren’t many cheap thrift stores near you? What if garage sales are low-end and/or sporadic? What if you just don’t have enough money on hand to invest in inventory to resell?
For these people, consignment is a great option that I’ve used with a lot of success.
What is consignment?
Consignment is specifically an agreement to pay a supplier of goods after the goods are sold.
It’s typically done in a store setting, where someone goes into a store and strikes a deal with the shop-keep, however, a person will give you their items to sell online too.
In principle, the owner of the item and the seller of that item will agree on final price. Once the item sells, the seller will pay the (now) former owner, and in turn the seller will get a previously agreed upon percentage of the sale.
How does the item owner get paid?
There are two main ways for item owners to get paid, and there are pros and cons to each method.
Method 1: Upfront Payments
Someone will bring a rare item into the pawn shop expecting to get retail price on a particular item. Rick Harrison, one of the owners, will kindly explain that he is in the resale business and that he needs to be able to turn a profit on the item.
Benefits & Drawbacks
For the owner: They get paid upfront for their items. In many cases, they just need to make a quick buck and are willing to do so for a lower cost, which is to your benefit as the seller. However, the owner may not make as much as in a profit sharing model.
For the seller: Generally you only offer your bargain basement price because you have to factor in the chance that you don’t get what you think you will on the resale market, or it will take awhile to move. However, you do need to invest money to purchase items just like going to the store.
Method 2: Profit Sharing
In the profit sharing model, the seller will enter a contract with the owner of the item to which both parties will agree on lowest price to sell the item for and percent commission the seller will receive. Personally, this is my preferred method as I have no monetary investment in the item. If the item doesn’t sell, then I still haven’t lost any money.
Benefits & Drawbacks
For the owner: The chance to make more money! In this model the seller has no financial investment in the item and therefore there’s no risk (except time). This means the owner of the item may be able to negotiate a larger chunk of the pie. However, in this model items may not sell quickly (or at all) which means no upfront payment.
For the seller: The owner assumes all of the risk, which is great, as there’s no upfront investment. The downside is dependent upon what kind of deal you work out as there may be more margin to be made with the upfront payment model.
The pluses of consignment
These are some of the reasons I love selling consignment items for other people:
- No monetary risk when using profit sharing method, especially if you’re selling online which eliminates overhead costs
- Exposure to trending items, especially if you are new to the fashion world!
- More likely to get newer items
- Time saver; instead of digging around at the Goodwill, the items are brought right to you.
Although the majority (about 99%) of my business is based in typical resale (buy low, sell high) I have had success with consignment. As I started to notice the impact that my sales were having at squashing my student loans, I couldn’t keep my mouth shut about it. I also needed to have some kind of explanation to my co-workers as to why I was skipping lunch in the break room and returning with bags of used items every time.
Some of my co workers even started their own reselling businesses after hearing what I was doing! However, there were a few friends and co-workers who simply did not have the time or they just didn’t want to do it. But as it turns out they were closeted shopaholics who needed extra income to acquire new statement pieces to add to their already fashionably fat wardrobes!
Can you believe someone gave me this to sell?
I had a co-worker once bring me in a brand new in the box Gucci Monogram Key Clip Case to sell for her. We had settled on 50% commission and I told her that I wouldn’t take any less than $100 for the item (retail is $300). She agreed.
Within 2 weeks, the item sold for $100 on eBay. After fees, this left us with a profit of $87.50, half of which ($43.75) went straight into my pocket
Or, more accurately, Navient’s pocket.
I then sent her the funds via PayPal, which can be done for free as long as they’re sent friend to friend.
The minuses of consignment
Despite the many positives of consignment, there are some negatives you should be aware of:
- The seller may not agree on a percentage that is as favorable as the 50% my friend and I agreed on
- Limited floor space; you’ll need to store these items until (and if) they sell
- Risk of returns/poor feedback; you assume ownership of negative feedback, and based on what you and the original seller agree upon, you may be responsible for a full refund/return. eBay allots 45 days for the buyer to request a refund
Should you consider consignment?
Plato’s Closet, a franchised consignment store, has ranked #1 in its category in Entrepreneur Magazine’s Franchise 500 and has been in the top 500 for the last 11 years. In 2015, the average Plato’s Closet location had sales of $992,016. This franchise has taken the small concept of selling other peoples items and shown what really can be done if taken to the next level.
For someone who is just starting out, consignment (using the profit share method) is a great way to build you confidence in the potential of flipping and in yourself as your own boss.
My advice would be to start off dropping hints to family and friends. You never know the treasures someone may have and are willing to part with!
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