Why Consignment is Better Than Selling

    There are many reasons to opt for consigning your product rather than selling it yourself. Before discussing these reasons and the benefits of the consignment model let’s understand the concept so you have a better idea of whether it fits your business or not.

What is Consignment?

Consignment is the commercial process in which the seller delivers their product to an agent to sell it on their behalf.

The seller in this arrangement is called the consignor and the agent is called the consignee. Even after the consignee gets possession of the products, the consignor remains the owner of the product. 

Once the agent sells the products to the end customer they are given a commission on the sales. The consignee returns the unsold goods to the consignor. 

During the whole process, the risk is borne by the consignor and all incurred expenses are met by them unless agreed otherwise.

Now that we have a good understanding of the concept let’s look at the major differences between sales and consignment.

Sales Vs. Consignment

Transaction

When the owner of the product forwards it to the agent it is called consignment. In comparison, when a product is sold to a customer in exchange for a price it is called a sale.

Parties

In consignment, the parties are called consignor and consignee whereas in a sale process the parties are buyer and seller.

Relationship Between the Parties

The relationship between the parties of a consignment is principal and agent whereas in a sale they are debtor and creditor. 

Transfer

In consignment, the possession of goods is transferred to the agent and the ownership remains with the principal until they are sold to the buyer. In comparison, during the sale process, both ownership and possession are transferred to the buyer.

Return Policy

The consignee can return the unsold goods to the consignor whereas the buyer needs the seller’s permission for returning the goods.

Risk and Rewards

In consignment, the risks and rewards associated with the goods rest with the consignor. Conversely, the risks and rewards are transferred from the seller to the buyer with the sale of the goods.

Remuneration

In consignment, the agent is given commissions on the sales they make whereas in the sales process the seller earns profit from the sales they make.

Statistical Perspective on the Consignment Market

According to a consumer research firm, around 12-15% of people shop at resale/consignment stores during a given year. To put this in perspective 16-18% shop at thrift stores, 11.4% shop in factory outlets, 19.6% shop in apparel stores and 21.3% shop at prime department stores.

Why Choosing Consignment? 

No Risk

One of the major advantages of becoming a consignee is you don’t have to bear the risk. All of the risks are borne by the consignor and after the sale the customer, you’re just an agent that gets their commission on sales.

To Test the Waters

The consignment model provides a great opportunity for both the supplier and the agent to test the waters. They can get used to new sales channels, test new products and practice innovative approaches without the risk of major financial loss. 

Easier to Convince the Retailer/Agent

It's easier for suppliers to convince retailers to stock their products because all costs and risks are borne by the supplier. This approach gets the product in front of the customers and increases the chances of sales.

Builds Trust Between the Parties

Consignment builds trust between the supplier and retailer so they can smoothly transition to a more traditional bulk order system. They get the chance to judge inventory turnover time, optimum order amounts and change the course of action as needed.

Benefits of Consignment: How it’s Better Than Selling

Both selling and consignment have their benefits. Here we will discuss some of the reasons why consignment is better than selling.

Better Cash Flow

Consignees don’t have to invest their own money in inventory. This improves their cash flow and reduces their risk.

Gives Suppliers a Place on the Shelves

Consigning their merchandise to agents gives suppliers a place to showcase their products in front of the customers. 

Quick Restocks

As stock availability is in the best interest of both parties, the inventory is usually replaced as soon as it sells.

Reduces Risk

The overall risk decreases for both parties. They get the chance to test the product, market and supply chain.

Smooth Transition and Better Relationship

The consignment framework provides an environment to nurture the relationship between the parties. Once the relationship fully develops they can become traditional suppliers and retailers.

 

 

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