How to Sell Products on Consignment as a Distributor
How Consignment Distribution Works
In a consignment arrangement, the distributor supplies goods to their retail customer without requiring an upfront purchase or exchanging any form of initial payment. The retail customer would then sell the products through their store as they normally would, and later pays the distributor a predetermined percentage of the sale price. At the time of payment, any product not sold would be returned back to the distributor, not being included in any of the costs incurred through the transaction.
Even though the product has been transported and delivered to the retailer, ownership actually remains with the distributor. The distributor will not lose ownership of the products until the retailer successfully sells it to their customers. Because of this, consignment can offer a fairly large amount of safety, eliminating any forms of risk to the retailer associated with taking on new inventory, and removing any cost barriers that might have otherwise prevented them from affording to purchase the products through traditional means.
How Key Players in the Consignment Process Benefit
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Distributor (Consignor): The business supplying and and transporting the goods on consignment to store locations.
- Distributors can get their products into more retail locations without requiring retailers to make large initial investments
- Distributors don’t have to store unsold goods, and retailers handle storage costs
- Distributors can track sales data to identify popular products and trends, essentially creating an organic test zone in the field for new sales data
- Additionally, consignment can foster trust and collaboration between distributors and retailers, creating a faster path to a potentially long-term customer relationship.
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Retailer (Consignee): The store or seller that showcases and sells the goods to their customers.
- Retailers don’t tie up capital in inventory, as they only pay for what’s sold
- Retailers can stock a wider variety of products without the financial burden of upfront purchases
- Retailers can easily manage inventory levels and adapt to changing customer demand
Challenges of Consignment Selling
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Risk of Unsold Inventory – If a product doesn’t sell, the distributor would be accountable for the inventory again, and may be forced to either take it back to the warehouse, or consider adjusting the current pricing model.
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Cash Flow Management – Since payments are made only after a sale, which would only occur further down the line, managing immediate cash flow can be challenging. In the short term, the distributor would naturally be unable to cover the cost of goods with revenue.
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Tracking and Managing Inventory – Without a proper inventory tracking system, it would be easy to lose track of stock and sales since they’ve now left the hands of your reps.
Steps That Can Simplify Selling Your Goods On Consignment
Finding the Right Retailers
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Research retailers that align with your product niche. Like most sales tricks, it’s highly likely that the value in deals like consignment won’t resonate with the entirety of your customer base. In this case, it’s important to view the underlying success of the sales as something relevant to your own decision making as the distributor. You’re sharing the responsibility for the sale, so you have to align your goods with the strongest presentation possible.
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Look for businesses that have strong customer traffic. It goes without saying that customer traffic will directly correlate with daily sales. Since you’re hoping to receive your payment through an invoice timestamped for a specific deadline, it’s crucial that whichever customer chosen has the base potential to match those odds.
Negotiate Consignment Terms Using inSitu Sales
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Define payment schedules and commission percentages.
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Clarify how unsold goods will be handled.
