Small Business Guide to Consignment Deals with Retailers: Tips, Pros and Cons

Running a small business can be both challenging and rewarding. One strategy that can help you expand your market presence and boost sales is entering into consignment deals with retailers. In this blog post, we’ll explore valuable tips for securing consignment deals, the advantages and disadvantages of consignments, and how to determine the best consignment percentage to ensure both you and the retailer profit. Additionally, we’ll provide you with a sample consignment agreement to help you get started.

Tips for Getting Consignment Deals with Retailers:

1. Research Potential Retailers: Identify retailers that align with your brand and target audience. Research their product range, customer base, and reputation to ensure a good fit.
2. Prepare a Compelling Pitch: Craft a persuasive pitch that highlights the benefits of your products for the retailer’s customers. Clearly communicate how your items will enhance their product offerings.
3. Professional Presentation: Create visually appealing materials such as product catalogs, brochures, and price lists to showcase your products professionally.
4. Flexible Inventory: Offer a range of products and quantities to cater to different customer preferences and retailer needs.
5. Negotiate Fair Terms: Be open to negotiation on terms such as consignment percentage, payment schedules, and return policies. Finding a balance that works for both parties is crucial.

Pros and Cons of Consignments:

Pros:

1. Exposure: Consignment deals provide exposure to a wider audience through established retail channels.
2. Reduced Risk: As the retailer only pays for sold items, your business carries less financial risk.
3. Retailer Incentive: Retailers have a vested interest in promoting and selling your products.

Cons:

1. Delayed Payments: Payments are contingent on sales, which may lead to cash flow challenges. Payments may also be delayed due to the business ethic of the retailer so ensure the consignment contract in place had specifics on the date payout is to be made. 
2. Less Control: You have limited control over how your products are displayed and marketed in the retail environment.
3. Higher Percentage: Retailers may try to take a higher percentage of the sale price compared to wholesale deals. Please ensure you get everything in writing on the consignment contact as some retailers may make last minute changes to the contract without advising you. Though this is unethical it does happen, so ensure the consignment contract has a detailed outline of percentages. For example a 30/70 split (30% retailer and 70% maker) 

Determining the Best Consignment Percentage:

The ideal consignment percentage varies based on factors such as your production costs, desired profit margin, and the retailer’s pricing strategy. Typically, a consignment percentage of 30% to 40% is common. However, it’s important to calculate your costs and potential profits to ensure the arrangement is mutually beneficial.

Sample Consignment Agreement:

This sample consignment agreement outlines the basic terms and conditions for a consignment deal:

Agreement Date: [Date]

Parties:
[Your Business Name], hereinafter referred to as the “Supplier”
[Retailer’s Business Name], hereinafter referred to as the “Retailer”

Terms:

1. The Supplier agrees to deliver the consigned products as listed in Exhibit A to the Retailer’s store location.
2. The Retailer agrees to display and offer the consigned products to customers for sale.
3. The consignment period shall be [Duration], commencing on [Start Date] and ending on [End Date].
4. The Retailer shall remit payment to the Supplier for sold items within [Payment Term] days of the end of each calendar month.
5. Unsold items may be returned to the Supplier at the end of the consignment period at the Supplier’s expense.
6. The consignment percentage shall be [Percentage] of the sale price for each item sold.

Signatures:

Supplier: [Signature] [Date]
Retailer: [Signature] [Date]

This consignment agreement is a template and should be customized to reflect the specific terms agreed upon between the Supplier and the Retailer.

In conclusion, consignment deals can be a strategic way for small businesses to expand their reach and drive sales. By following these tips, carefully considering the pros and cons, and negotiating fair terms, you can create successful consignment partnerships that benefit both your business and the retailers you collaborate with. Though a great option to expand many makers do not recommend this route due to delayed payments and dishonesty on the retailers end. Makers have also advised that they have operated at little margins and sometimes at a loss due to consignment deals going bad.