Consignment selling is a convenient way for small manufacturers, farmers, artisans, craftspeople and others to hawk their wares. In a consignment agreement, the consignor-- the party that produces merchandise for sale -- displays items at the consignee’s retail location or website. The consignee doesn't pay for the items, but rather splits the sales proceeds with the consignor.
A consignment agreement spells out the business relationship between the consignor and consignee. According to Miss Modish -- a marketing consultant and blogger --the customary consignment split gives 60 percent of the sale proceeds to the consignor and 40 percent to the consignee. This is not universal, however, and you might see arrangements with an even split or some other formula. A strong retail location and active promotion by the consignee might require a higher split in the consignee’s favor. Consignors producing items in strong demand might be able to work a more favorable split.
Beyond the split, the consignment agreement should spell out how and how often the consignor is paid. A well-crafted agreement will require the consignee to provide a list of sold merchandise along with the payment. The agreement should also specify how long the consignee will display consigned merchandise before returning it to the consignor. The consignor should be able to pull merchandise at any time. Other terms might include specifying who is responsible for lost, damaged or stolen items and how to handle shipping costs.
Benefits to Consignor
A consignment agreement allows the consignor to concentrate on producing merchandise rather than on operating a retail business. The consignor doesn't have to lay out money for a retail location and the resulting ongoing expenses. Consignors benefit from displaying their wares in attractive retail locations that directly expose their products to consumers. By using a variety of consignees, a consignor can learn which markets and audiences produce the most sales. The biggest risk to the consignor is dealing with a shady consignee, but even this can be a learning experience.
Benefits to Consignee
A consignee gets to expand her offerings without laying out money for wholesale purchases. The consignee doesn't bear any financial risk if the consigned item doesn't sell. Consigned merchandise can also fill in gaps in the consignee’s inventory, especially around holidays. For example, a consignee might be able to offer Christmas items on consignment without planning purchases in July. The consignee might receive a better split from a consignor than the customary 50/50 split between wholesaler and retailer. In addition, the consignee saves time and energy by allowing the consignor to keep consigned goods clean and attractively displayed.
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