You have amazing products, and retailers have approached you to sell on consignment. Selling on consignment can be a great way to improve exposure for your products, as you’ll be able to get your products in front of a new audience.
When you’re selling on consignment, your consignee only purchases the stock after it’s sold to the end customer, and only then are you paid for the products. Ideally, the retailer benefits by having a wider variety of products on sale, while you’ll be able to improve your sales with minimal effort.
However, the situation is often less than ideal, and selling on consignment comes with a different set of risks.
There are horror stories about retailers that delay payments, or treat consignment stock as “shelf fillers”. That’s why if you’re selling consignment, you need to write up a consignment agreement that outlines your expectations.
It’s not surprising that selling on consignment can leave you feeling like you’ve got the short end of the stick. After all, a shop is only investing in your products and contributing to your business when they’ve made a purchase order.
So how can you turn your consignees into wholesale accounts?
Offer new retailers consignment as a trialWhen a new retailer approaches you to sell on consignment, what do you do? Naturally, you’d prefer to have your stockists purchasing your products wholesale before selling them. However, your new retailer is reluctant to commit to new products.
In a situation like this, starting your relationship with a consignment agreement would be the best possible outcome for both parties.
The only catch is that this time, you’ll give them an ultimatum. After three months of consignment sales, they’ll have to either place a wholesale order with you, or risk losing the chance to carry your brand.
Even then, retailers may express their reluctance to open a wholesale account because they’ll have to buy your products wholesale before they can sell them.
If this happens, remember that the whole point of venturing into wholesale (the end goal of consignment) is to move a higher value of goods and enjoy better cash flow.
Give wholesale accounts better pricesSetting the right price is always a challenge, especially when you’re venturing into consignment and wholesale. Ideally, you should be practicing keystone pricing (where you sell a product at a 100% profit) at every level.
This means assuming you have a product that costs you $5 to make, you should be selling it for $10 at wholesale prices, and $20 at retail price.
The question then is, where does selling on consignment fit into this?
Even though your consignees deserve a share of the sale for their marketing and sales efforts, you’re the one fronting the inventory. Since you’re the one absorbing inventory risks, you can’t be offering your consignees the same pricing as your wholesale accounts.
A good rule of thumb is to consign at 60-70% of retail price. That means you’ll get to keep 60-70% of every product sale, and the consignee gets to earn a commission of 30-40%. It’ll also serve as a great incentive to turn your consignees into wholesale accounts.
If your consignees wish to enjoy the same profit margins as your wholesale accounts, they’ll just need to make the switch from consignment to wholesale.
Remove minimum order quantities for new wholesale accountsRetailers tend to balk at the mention of Minimum Order Quantity (MOQ) terms. MOQ terms offers wholesalers (like yourself) the chance to enjoy economies of scale, as you’ll be selling larger volumes to make up for the reduced prices.
MOQ terms are meant to ensure that only the best retailers purchase from you, and these are supposed to help you weed out the buyers who are looking for the cheapest prices.
But as mentioned above, MOQ terms can give prospective retailers cold feet, even if your products are enjoying brisk sales.
If you’re facing this situation, you can offer to drop your MOQ requirements for the first two months. By dropping your MOQ requirements, you’ll be able to push your on-the-fence consignees to convert to wholesale accounts.
Maybe you’re wondering how you can offer different retailers different terms and conditions. If that’s your concern, all you need is the right B2B eCommerce platform that lets you set different prices and MOQ terms for individual retailers.
When it comes to turning consignees into wholesale accounts, you can start by putting these three tips into action. Most retailers are motivated by price above all else, and that’s why offering wholesale accounts lower prices without the pressure of hitting minimum order quantities is so important.
Ultimately, if you can offer your consignees an irresistible deal that takes their apprehensions into account, you’ve just increased your chances of getting them to make the switch to wholesale.