How to Sell on Consignment

Sellers seeking new and expanded wholesale and retail markets for goods can use consignment selling to economic advantage in many cases.

This guide provides a discussion of the advantages/disadvantages of consignment selling and general comments about how to use consignment as an effective selling tool for the small business operation.

What happens to a manufacturer who has developed a new consumer product that is thought to be a best seller, but no retailer or wholesaler is willing to invest enough capital to stock a small number of the items in inventory?

What happens to a manufacturer who is told that the seasonal product he or she is trying to sell is such a capital risk that there is probably no chance that it will make the retail shelves during that Christmas season?

How can manufacturers in these cases and similar cases make the products and terms of sale sufficiently attractive to get the product on retail shelves for exposure to the buying market?

Perhaps through the use of consignment selling.

Selling goods on consignment is described as a situation whereby goods are shipped to a dealer who pays you, the consignor, only for the merchandise which sells.

The dealer, referred to as the consignee, has the right to return to you the merchandise which does not sell and without obligation.

As you can see, this may not be an ideal arrangement. The dealer has no money invested and is not obligated to "push" your merchandise.

Purpose Of Consignment Selling

Even with obvious disadvantages, there may be times when you may decide that consignment selling can serve your purpose. It can be used as a marketing tool which creates no obligation on the part of the dealer in the event they do not sell. As a result, such practice can provide an attractive incentive for the dealer, at least to stock your merchandise. The dealer has no risk and you have your merchandise before the buying public.

Examples of goods which very often are sold on consignment include light bulbs, produce, eggs, poultry, magazines, newspapers, Christmas decorations, garden seeds, batteries for flashlights, and potted plants such as those found in supermarkets.

In the case of perishable merchandise (either in quality or in seasonal appeal) dealers are often more inclined to consider placing it in their stock if they have no great threat of financial loss on investment in the event it does not sell.

In the case of a newly designed and manufactured product for which there is no sales record, dealers might be more enthusiastic about promotion if their investment loss is minimized.

Advantages Of Consignment Selling

Now that you've read some general facts about consignment selling, look at the specific advantages to you as a manufacturer.

It allows a seller (manufacturer) to place merchandise in wholesale and retail outlets for additional exposure to the buying market.

It can provide an incentive for the wholesaler and retailer to stock goods in inventory because no capital of theirs is tied up in inventory.

It can encourage wholesalers and retailers to stock seasonal or otherwise newly introduced merchandise which they might not usually buy because of a lack of demand.

It provides the manufacturer with the opportunity to have the merchandise exposed to the buying market, instead of having it stored and isolated in a warehouse while waiting for an order from a buyer.

Disadvantages Of Consignment Selling

In deciding whether or not to use consignment selling, you need to look at the disadvantages.

While your merchandise is being exposed on the shelves of a wholesaler or retailer, you get no money until they sell.

As the manufacturer you must have enough cash on had to wait extended periods for payment of merchandise sold.

Since the goods are out of your physical control, you cannot control the damage and shopper abuse which inventory merchandise is generally subject to.

You cannot always affect shelving decision which wholesalers and retailer make concerning maximum exposure of the merchandise. Because consignees do not have any capital invested in the inventory, they may be inclined to place their outright-owned inventory in the most advantageous display spots in order to realize a fast return on investment. They are aware that they do not lose any investment if the consigned goods do not sell. They do lose if the inventory they own does not sell.

Where personal selling is important, outright owned merchandise might be promoted over consigned goods because, again, return on investment matters where investment exists.

If the gross margin to the seller is greater than the percentage commission with the sale of consigned goods, then the seller might tend to favor selling the outright owned goods. For this reason, the consignor is introduced to the importance of providing an attractive incentive in the form of a commission for the consignee. In other words, the consignee needs a strong reason to sell the merchandise since the motive to recoup investment is not present.

A Few Words Of Caution

Consignment selling may or may not be attractive to you. It depends on your situation. You might use consignment selling for market testing. It might be a fairly inexpensive way to learn how or if a new product will sell.

Keep in mind, however, that you tie up your funds waiting for merchandise to be sold. Also, the dealer may be a poor credit risk. Moreover, there may be other hazards inherent in a situation where the dealer does not have funds tied up.

In brief, the various factors over which you have less control than in other marketing situations could mean that the risks may be greater than your resources can absorb.

To evaluate whether or not consignment selling can be advantageous to you, consider the following discussion of the consignment relationship, special considerations, and examples of operational aspects.

The Consignment Relationship

The relationship which exists between you, the consignor, and another seller, the consignee, is an agency relationship. That is the consignee never takes title to the merchandise buts acts as the agent of the consignor to pass title to the buyer.

Since title does not pass to the consignee in the absence of an agreement, liability of loss for the merchandise remains with the consignor.

This means that you and the consignee can agree to specific statements for assuming a share of the loss in case of shoplifting or other damage to the merchandise. However in the absence of such an agreement, you, the consignor, are responsible for the loss involved even though the merchandise might have been shoplifted from the premises of the seller while the consignee exercised normal care in the display and handling of the merchandise.

Because of the details and legal implications involved in consignment selling you, as a consignor, should give careful attention and planning to selling products on consignment.

This Report offers managing your Company tips and Handle business advice. But you are not ready to start your own business until
you've given any thought to handling it. A company is an ongoing activity that does not run itself. As the manager you will need
to set goals, decide how to reach those goals and also make all the necessary decisions. You'll have to purchase or make your
product, cost it, advertise it and sell it.

You will need to keep documents, and determine prices. You will have to Control stock, make the right buying decisions and keep
costs down. You will have to employ, train and motivate employees today or as you grow.

Setting Business Management Goals. Good small business management Is the key to success and good management starts with setting
goals. Establish goals for yourself for the achievement of the many activities necessary in establishing and managing your company
successfully. Be specific. Write down the goals in measurable terms and conditions of functionality. Break big goals down into
sub-goals, showing what you expect to achieve in the next two to three months, the next six months, the next year, and the
subsequent five years. Beside each target and sub-goal place a particular date showing as it's to be attained.

Plan the action that you need to take to attain the goals. While the effort Needed to reach each sub-goal ought to be good enough
to challenge you, it should not be so good or unreasonable as to dissuade you. Don't plan to achieve too many targets all at one
time. Establish priorities.

Plan in advance how to quantify results so you can know exactly how Well you're doing. This is what is meant by"measurable"
targets. If you can not keep score as you go along you are likely to lose motivation. Re-work your plan of action to allow for
obstacles which may stand in your way. Attempt to foresee obstacles and plan strategies to stop or minimize them.

Buying. Skillful purchasing is an important essential of Managing a business enterprise. This is true if you are a wholesaler or
retailer of product, a manufacturer or a service company proprietor. Some retailers say it is by far the most significant single
factor. Merchandise that's carefully purchased is easy to sell.

Deciding what to buy means finding out the Kind, type, quality, Brand, size, colour, fashion -whatever applies to a specific
inventory - that will sell the best. This requires close attention to salespeople, trade journals, catalogs, and especially the
likes and dislikes of your regular clients. Analyze your earnings documents. Even the manufacturer should view the problem through
the eyes of customers before determining what materials, parts, and materials to buy.

Know your regular clients, and also make a good evaluation of the People you hope will become your customers. In what
socioeconomic category are they? Are they homeowners or renters? Are they looking for price, quality or style? What's the
predominant age category?

The age of your clients can be a prime consideration in Establishing a buying pattern. Young people purchase more frequently than
most elderly folks. They need greater, have fewer responsibilities, and invest more on themselves. They're more aware of fashion
trends whether in sporting apparel, automobiles or electronics. In case you decide to cater to the young trade only because they
appear dominate in your area, your buying pattern will be wholly different than when the more conservative middle-aged customers
seem to be in the majority.

Study trade journals, newspaper advertising, catalogs, window Displays of businesses like yours. Request advice of salespeople
supplying you merchandise, but buy sparingly from several providers rather than one, analyzing the water, so to speak, until you
understand exactly what your best lines would be.

Finding suitable merchandise sources is not easy. You may buy Directly from producers or manufacturers, from wholesalers,
distributors or jobbers. Pick the suppliers who sell exactly what you want and can deliver it if you need it. (Distributors and
jobbers are utilized by the majority of business people for fast fill-ins involving factory shipments.)

You may distribute purchases one of many providers to gain more Favorable prices and promotional material. Or you may concentrate
your purchases one of a small number of providers to simplify your credit issues. This may also help you become famous as the
seller of a particular brand or line of product, and to maintain a fixed benchmark in your products, if you are shopping for stuff
for manufacturing purposes.

When to buy is important if your business will have seasonal Variations in sales volume. More inventory will be required ahead of
the seasonal upturn in sales volume. As earnings decline, less merchandise is needed. This means purchases of goods for resale and
materials for processing should vary accordingly.

At the outset, how much to buy is insecure. The best policy is To be frugal until you've had enough expertise to judge your wants.
On the other hand, you cannot sell merchandise in case you don't have it.

To help solve buying issues, you should Start to maintain stock Control records simultaneously. This will allow you to maintain
the stock in balance - neither too large nor too little - with a suitable proportion and decent range of products, sizes, colours,
styles and attributes.

Basically , there are two types of inventory control - management in Dollars and control in physical components. Dollar
controllers reveal the sum of money spent in every product category. Unit controllers indicate the number of individual items when
and from whom bought by category. A good stock control system is able to help you determine what, from whom, when, and how much to
purchase.

Pricing. Much of your success in manage a business will depend on The best way to price your services. If your prices are too low,
then you will not cover Costs; too high and you'll lose sales volume. In both cases, you won't Make a profit.

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