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Table of Contents
*Updated November 30, 2024*
Renting Space vs. Wholesale vs. Consignment
Deciding what is best was a tough decision: Renting Space vs. Wholesale vs. Consignment.
I have just started a consignment sales relationship with a local boutique that I am very excited about.
As if to prove my instincts right, my first item sold early the day after I brought my things in before I could even begin this article.
I’ve decided that retailing my items online is not the best way for my business to make money.
I’ll probably always do it as a supplement, but I’ve been exploring other options for some time now.
It’s recommended to get everything in writing when forming a consignment agreement.
Here are my thoughts on the subject of consigning, wholesaling, or paying a booth fee to a brick-and-mortar shop:
Understanding Your Options
When selling your products, you have several options to consider.
Two popular methods are wholesale and consignment.
Understanding the basics of each option can help you make an informed decision about which is best for your business.
Booth Fee and Retail Price:
By Booth Fee, I mean paying to place my items in a storefront
In my first attempt to get my items into a brick-and-mortar shop, I rented booth space for six months.
I paid a reasonable fee – $40 per month—because the shop was in a good traffic location and was a well-established business.
However, I didn’t win the sale, which was a big hit to the ole’ walle.’
I did a few things wrong: I didn’t go to the shop because I loved it and thought it was a good fit.
I chose it because I realized businesses about my size sold there, and I was timid.
Being in a shop was a big deal, and I thought finding someone willing to have me would be a good fortune.
I’m more knowledgeable and businesslike now.
I can’t be anywhere else. It’s essential to weigh the benefits of Renting Space vs. Wholesale vs. Consignment.
I would consider this option again if I was sure my items fit the shop.
A sell-sheet provides retailers with a quick overview of your product and can improve your chances of making a sale.
Building relationships with retailers can lead to repeat purchases if the product performs well.
Effective sales presentations should be tailored to the specific retailer to resonate with their needs and expectations.
Wholesale Basics
Wholesale involves selling products in bulk to a distributor at a discount. The retailer then sells your products to their customers at a markup, typically at the retail price.
Wholesale involves selling products in bulk to a distributor at a discount, regardless of whether they sell. A wholesaler usually expects a discount of about 50% off the retail price.
This method is common in the retail industry and can be a lucrative way to get your products into stores.
Having regular wholesale customers can simplify inventory management for suppliers. However, it often requires a larger upfront investment and can be more competitive.
In some cases, if the retailer fails to sell all the stock, they can return any unsold items to the supplier risk-free.
Branding exposure can be enhanced through wholesale arrangements because distributors market the products. Entering wholesale requires more research than consignment, including understanding distributors and their product lines.
Wholesale may be better for experienced sellers looking for immediate payment. Setting clear terms in wholesale agreements is essential to protect both parties involved.
Consignment Basics
Conversely, consignment involves partnering with a retailer to sell your products on commission.
The retailer, the consignee, takes possession of your products and sells them to customers.
The commission for consignment sales can vary, ranging from a 40/60 split to a 60/40 split. Consignment generally pays sellers around 60-70% of the item’s retail cost.
Consignment means placing your product in someone else’s store with payment only after a sale.
Consignment is a popular option for artists, craftspeople, and small businesses that want to get their products into stores without paying upfront costs.
This method allows for lower upfront costs and potentially higher profit margins, but it can be riskier and requires more negotiation with the retailer.
Consignment can be more risky for sellers because they only profit if their product sells.
Consignment can be a way to test your products to see what sells well in person and what doesn’t.
Selling on consignment can bring in extra cash flow and increase brand exposure. Consignment allows retailers to sell products without upfront costs, making them more likely to accept unknown brands.
Testing products through retail partnerships can provide valuable market feedback and sales insights.
A consignment model is often more suitable for beginner or hobbyist sellers. A well-managed consignment agreement should include terms covering how your product will be displayed, payment frequency, and conditions for unsold goods. Consignment and wholesale agreements should include clear payment and product handling terms.
How Many Parties are there in Consignment? Renting Space vs. Wholesale vs. Consignment
In a consignment arrangement, three parties are typically involved: the consignor (you), the consignee (the retailer), and the customer.
The consignor provides the products, the consignee sells the products, and the customer buys the products.
Renting space is not typically involved in consignment, as the retailer is responsible for displaying and selling the products.
Conversely, wholesale typically involves only two parties: the supplier (you) and the retailer.
Understanding the dynamics of each consignment arrangement can help you decide which method aligns best with your business goals.
Pros and Cons of Each Option
Both wholesale and consignment have their pros and cons.
Wholesale offers the benefit of upfront payment and a guaranteed sale, but it often requires a larger upfront investment and can be more competitive.
Consignment, on the other hand, offers the benefit of lower upfront costs and a higher profit margin, but it can be riskier and requires more negotiation with the retailer.
Here are some key pros and cons of each option to consider:
Wholesale:
Pros:
- Upfront payment
- Guaranteed sale
- Can be more competitive
Cons:
- Larger upfront investment
- Lower profit margin
Consignment:
Pros:
- Lower upfront costs
- Higher profit margin
- It can be less competitive
Cons:
- Riskier
- Requires more negotiation with the retailer
Ultimately, the choice between wholesale and consignment depends on your business goals, resources, and preferences.
By understanding the basics of each option and weighing the pros and cons, you can make an informed decision about which is best for your business.
Selling Wholesale:
You get paid for the total quantity in wholesale once the wholesaler purchases it.
Wholesale allows for lower risk as the seller receives payment regardless of whether the products sell at retail.
I’ve been streaming wholesale for a while now, and I’ve been attracted some interest.
I believe I will land an ideal customer within the next few days.
I started thinking this way because small retail sales were getting me nowhere.
They were inefficient.
I had a few repeat customers, but not many because I don’t know the things you need to keep buying.
Once you have nursing coverage, you don’t need to pay for another one.
You don’t do anymore.
The whole point of some of my products—nursing pads and coffee cozies—is that they can be reused.
I figured wholesale accounts would be an excellent way to build a solid customer base and increase sales.
This method is common in the retail industry and can be a lucrative way to get your products into stores. Selling wholesale offers benefits like low risk, bulk sales, and increased brand exposure.
I’m still excited about it; we’ll see what happens. Does a Consignment Sale Work?
Consignment is splitting the sale proceeds with the shop owner at a preset percentage.
For example, you have something to sell, and a shop owner agrees to sell it for a fixed rate of 40% of the value of the price.
If the item sells for $100, then the shop owner keeps $40, and the owner of the item sold receives $60.
How Many Parties are there in a Consignment Arrangement? Renting Space vs. Wholesale vs. Consignment
There are two parties in a consignment sale.
Each party can have more than one person.
In a consignment arrangement, three parties are typically involved: the consignor (you), the consignee (the retailer or consignment store), and the customer.
For example, a husband and wife could own a car together and decide to sell it using a car dealer.
If the retailer fails to sell all the stock, they can risk-free return any unsold items to the supplier.
Why I decided to Sell Products by Paying a Booth Fee
I started selling at the store, paying a booth fee because it was not a consignment.
Many stores that sell handmade items do sell on a consignment basis, and at the time, I found this unappealing.
Selling directly to consumers requires more marketing and selling effort than selling through retailers.
Retailers often purchase larger quantities, increasing sales per transaction for the seller.
I think “consignment” had a “connotation “of cheap thrift store goods that made very little cash for the consignor.
I’d sold some of my I’d baby things this way.
Consequently, my net payout seemed meager compared to what I could get by selling it myself.
It’s confusing to me, but at the time, I preferred a booth fee because I knew up front how much it would cost me rather than having it based on sales.
In retrospect, I am sure my items weren’t priced properly. So, the shop’s 30% cut is no longer necessary now that products are priced to allow wholesale pricing.
I learned that a Consignment Shop was a better choice
Knowing your audience is crucial when selling; it helps tailor your presentation and pricing strategy. Consignment now seems like the best of both worlds for me, especially with the flexibility offered by a consignment shop.
It was a valuable exercise investigating Renting Space vs. Wholesale vs. Consignment. Effective inventory management ensures smooth operations and booming sales in a consignment setting.
I believe there is minimal risk to me or the online store.
If I don’t sell, I don’t pay the retail store.
Most noteworthy, the shop I am consigning to is nearby, which is very convenient. This makes it easier to sell consignment.
It is a better fit because the store shares an aesthetic with me and my brand. The store owner is very supportive of my products. Additionally, store owners appreciate the unique items I bring in.
Do you rent space, sell [or buy] wholesale or on consignment?
So, what insight do you have to share about wholesale consignment?
Do you rent space, sell [or buy] wholesale or on consignment?
So, what insight do you have to share?
Oh, and another thing: with consignment, both the shop owner and I have a continuing incentive to promote sales of my items.
Great article! I’ve always been interested in selling wholesale but it is a goal I’ve set for my business in the future (for when I take on a second seamstress)
I will be selling some products on consignment in a boutique in my town. It’s great because I know the owner and she is helping me price my items properly so that I make a good cut. We are also promoting each other through social media. One thing that is fun about making items for the boutique is that I’m making a small line exclusive to the boutique, using fabrics that will match her other collections. It’s something to think about because that way the items in your online store don’t necessarily compete with the items you have in a boutique.
Thanks for your comment. I agree that having a specific line just for selling in the boutique is a great idea. I also love the idea of supporting each other through social media. Us small business owners need to stick together!
So glad you enjoyed it. :] The exclusive line sounds like a lot of fun; good luck!
In the past I have rented space (monthly fee) in a shop and for the last year have had items in a local shop using a consignment set up… because some of my items are small/less expensive the consignment works better right now because there are some months I sell lots and there are some months where the rental fee would far outweigh the income. I also prefer the local shop for the companionship, we have to work a few hours a month in the shop and I’ve gotten to know the owner, and we mutually support each other on social media too…. sadly, this shop will be closing in a month because her storefront overhead is too high and she will take her money making ventures (art classes and parties) mobile…. this is sad for many of the local crafters in her shop who will now have to move back to being solely online. Time for me to yet again think on how much of a priority I want to make my little business in my life or if I need to let it cool off a bit to focus on my family.
My issue with space rental was a misunderstanding of how sales tax would be handled. ie, I got a check for amount sold but she had not collected sales tax and I had to pay it out of pocket (so actually sold product for 6.75% off!). Now owner says if consignment she pays tax collected, if space rental, it is my responsibility. State help line was unclear, saying it is up to us to decide who pays. I really do not care either way, as long as I can get the tax amount and pay my sales and use tax quarterly. But it has to be COLLECTED for me to get it…..Get it ahead, in writing, next time!! This was an excellent article, Thanks.
That is very interesting Janet. I am in Ontario Canada and depending on the item there is no tax – used, baby items etc. I would ask if the category of item you make is generally taxed. From your email I would guess you make soap and here it is considered a non-taxed item.
Yes, I make soap and other cosmetics. Here in the US, just about everything is taxes…..I have to charge 4.75% State taxes and whatever the county I sell in requires (here 2%). I have decided to remove from the shop rather than the other option to go 60/40 with her. I will look for other venues and opportunities. Just finished a great Irish Ale soap with hops in sit. Taking it to some micro breweries in the area!
I love craft beer. I think the ale soap is a great idea. Good luck 🙂
How do you find stores that offer space to rent for second hand clothing? I have done countless searches and haven’t found anything. I’m in Northern Illinois. Does anyone have any ideas?
I suggest you visit local Flea Markets in your State and talk to people that are selling similar items to investigate a collaboration.
A place offered to sell my products and would both charge a $50 monthly rental and take 30%. After reading this and seeing comments, this arrangement doesn’t seem common. Does anyone have insight?