Episode Transcript
Nina (00:04.506)
Hello everyone! Oh my goodness, this is always my... one of my favorite...
Hello everyone, welcome to the Makers Business Trip podcast. This is of course one of my most favorite things to do on... Hello everyone, welcome to the Makers Business Trip podcast. It is just me, Nina today. And this episode I am really excited about even though it might feel really geeky, but I would like to...
share with you guys a few thoughts on selling on consignment because
Nina (00:54.224)
Hello everyone. Hello everyone. Welcome to the Makers Business Tribe podcast. It is only me, Nina today. And this week's topic, I am really excited about delving deeper into because we had a few conversations inside the tribe about consignments, the pros, the cons, the opportunities, the challenges.
the risks and I did a little bit of Googling and there wasn't really that much on the internet. Hence why I was like, hey, let's dissect this topic because especially as product -based business owners starting out, you might be really tempted in striking a few deals with retailers on consignment. Now let's break this down.
and have a look at what it means and how it works and what you need to watch out for and really clarify before you enter into something like that and when it might be time to move out of this. Okay. So first thing, what does it mean to sell on consignment? Maybe you tell us this. So on consignment means that you will literally hand over your product,
without receiving any monetary values to the store owner. The store owner will display it in their store, sell it per either your recommended retail price or they might make up a price. And once you've sold it, they will pay you the agreed wholesale price and they will keep their added
retail margin. Now, why would you consider that? Well, if your product is fairly unknown by the retailer, they might be very hesitant and stocking the product because they don't know if it's going to sell. They might have hesitations in whether they spend, you know, $500, $1000 on your product.
Nina (03:09.776)
and then it might just clutter the shelves and no one is interested or number two they might not have the funds to stock your product so they might be like i would love to stock your product and sell it for you but i can't pay you right now do you want to do on consignment so it can be a great opportunity if you really want to get into that store and you've done your research and you are confident
that the product is going to sell there because your customers, your favorite humans frequently shop there or maybe have even asked for the product to be stocked there, then it might be a great opportunity to place it there and to hand your product over in good faith and let that retailer sell your product for you. Here are the challenges though.
if you are handing a retailer over your product and they don't exchange money for that.
Is there any downside for them to not sell the product, to not make an effort, to give it the shittiest shelf space ever? Yeah. Or to not even look after it, let it be stolen or damaged. Not really, because they didn't pay for it. And it's very easy for a retailer to, to, to, to, to have that thought in their mind. Okay. Well, this isn't my product. So I just am.
make some space wherever I can make some space and if anything happens to it it's not my problem. Yeah so very important that if you want to go down that route to have really tight terms in place in which you stipulate once you hand over that product it is their responsibility and if the product gets damaged or stolen
Nina (05:13.872)
that they will reimburse you for it, paying you that agreed wholesale price.
Nina (05:24.976)
Then...
Nina (05:33.2)
Then another point to consider is what order volume are we talking here? Is it a small amount? Are we talking 50, 100, $200 outlay? And are you comfortable with that? Are you happy to not be paid for that for a while? Or are they actually asking you to fill a whole shelf and only paying you once it's been sold to the customer? Because there is that risk.
that you might not see that money for a long time if for some reason it doesn't sell or if they're not making an effort to sell it or if they might not even put it into the shelves because unless contractually agreed they could be putting that product anywhere because they don't have any risk because they didn't pay for it. Yeah. Then what I would really clarify with them.
What are they offering you if they are asking you to give them a product on consignment meaning for free? What are they offering you in regards to store marketing or shelf promotion? So because if a retailer says to you, I only pay you once I sold the product, then let's have a conversation about.
where specifically we are displaying this product and how are we making sure that we're giving my product that I'm giving to you for free the very best shot. So I would sit down with the retailer and say, okay, I'm happy to give it to you for free because I'm confident it's going to sell, but let's choose the shelf space and let's agree on how we're going to market it to your customers. What is my role? And...
What is your role and how are you going to and how are we going to make sure that we are each sticking to the bargain? Again, if there's no money flow, you could be agreeing to all sorts, but there's no downside to them if they don't hold up that agreement except for jeopardizing the relationship with you.
Nina (07:55.536)
Then, of course, as I mentioned before, have a really good agreement on what happens if the product gets damaged or stolen and also have an agreement how often and when they will pay you. Because without that in place, well, how would you, number one, know that a product has been sold? And when would the money actually reach you? And...
I would also put in place that if a certain number of products get sold, that any agreement after that is payment upon receipt of invoice or payment upon receipt of product versus for some reason them having the expectation that you just continue that because it kind of worked out.
Because of course, as a retailer, I will push for that, right? If someone starts just giving me product on consignment, well, let's keep going with that because, you know, in an ideal world, I don't want to reduce my cash flow if you don't ask for the money. So very important to have something like that in place to say, okay, this will be a once off. I am happy to do that on the XYZ.
conditions by you, by us having a really clear contract in place of marketing, shelf promotion, what happens if the product gets damaged or stolen so you don't sit on those costs, meaning that they actually have a responsibility to do the best to sell the product and to protect it. I would also have in my conditions about return.
policy because if your product has a shelf life and it doesn't sell, can they give the product back to you at the end of shelf life and then you can't even resell it? Or at what point in time do you guys need to make an exchange back of the product
Nina (10:13.136)
That will be an important thing to figure out.
Nina (10:31.248)
That would also be an important thing to have figured out.
Nina (11:13.68)
And I would say the last thing to really align with them is that they will not share with other retailers that you guys did a consignment deal because of other retailers hear about that. They might actually have the same expectation as your current retailer. And it will, it will be, it will get really hard for you from a negotiation.
and relationship building perspective. If people think that that's what you do, because if your brand doesn't have a really high demand from customers yet, it is just super easy for retailers to say, well, I only take it if you give it to me for free. But ultimately you are super busy to grow a profitable business and you have an outlay when it comes to.
ingredients, manufacturing and potentially shipping. So you really have to protect that and understand and know your worth. And I would only use consignment if you have, if you are really certain that your product is going to sell there, that you can potentially monitor.
the sales quite closely and that this will be just a once off to get the retailer across the line to get them to see and experience how much of an asset your product is going to be for them, how much more sales it's going to drive and ultimately for you to set up a really profitable, healthy, long -term business relationship with that retailer.
So yeah, that is it for me on consignment. I hope that was helpful for you and until next time.
