Selling Handmade Consignment vs. Wholesale (Which is Better?)

Once you have your craft business up and running and have worked out your pricing, you may start looking at different sales channels to sell your product through and wondering what the difference is between selling handmade on consignment versus selling handmade wholesale.

This article will explain the pros and cons of each and when one is better than the other for your business.

 

Consignment vs. Wholesale

Consignment and wholesale both allow your products to be sold by a retailer, but a consignment deal means you only get paid if your product sells, while a wholesale deal means you get paid for the product whether or not it sells in the retail store and you’re paid upfront.

The benefit of selling through retailers, whether on consignment or by wholesale, is that they’re responsible for marketing and selling your products.

When you sell directly to consumers, you spend time and money to market and sell those products (e.g. Etsy listing fees, craft show fees, posting to social media, sending newsletters, shipping materials/shopping bags, transaction fees, trips to the post office, etc.).

If marketing and selling aren’t your strengths, you may want to focus on selling your products through retailers.

Yes, you still must market and sell to retailers, but you’re increasing your value per transaction and reducing how much marketing and selling you must do.

Retailers won’t just buy one item from you, they’ll purchase larger quantities so you’re selling much more to a retailer than you are to a consumer.

And if the product does well in a store, they’ll purchase from you repeatedly; which requires minimal marketing effort on your end (perhaps a follow-up email each quarter with your latest lookbook). On the other hand, if a consumer buys an item from you (e.g. a handbag), they likely won’t buy from you again until that item wears out or goes out of style.

 

A) Selling Handmade on Consignment

Consignment shops are a way for the shop owners to “borrow” products from a variety of vendors to fill their store, without having to go into debt for that stock. Any store may sell products on consignment, not just “consignment shops”. A retailer may buy most of their products wholesale while making consignment deals with a few vendors they want to test out in their store.

When an item sells, the vendor receives a portion of the sale, as does the consignment shop.

The commission each party is paid depends on the agreement. It can range from a 40/60 split, 50/50 split, 60/40 split, etc.

If you’re selling handmade items, typically you’ll receive 60% of the sale while the consignment shop receives 40%.

>> What’s a Fair Consignment Percentage? (How To Negotiate an Increase)

 

Consignment Pros

• It can be a good way to get your foot in the door with a retailer as it’s less of a risk for them and it may eventually turn into a wholesale agreement if your products sell well.
• If you have a good relationship with the store owner, they may be more flexible with their inventory. Meaning if you have a craft show approaching, they may allow you to take some of your stock back and re-stock them once the sale is over. It’s not a good habit to get into but it is an option with consignment.
• Some boutiques are more generous with their consignment commission giving you more than 50%. 
• It can be a great way to test the waters and get a feel for what sells and what doesn’t without damaging your reputation with a store. If you sell your items wholesale to a store and they don’t sell, that store takes a loss and they most likely won’t risk buying from you again.

  

Consignment Cons

• You don’t get paid unless your items sell, which can mean spending a lot of time and money to fill a consignment store’s “order” and not getting paid for it.
• Your commission can vary from store to store. Some may only pay you 30-40% of the selling price.
• Unsold items get returned to you which may mean you’re left with shop-worn or out-of-season stock that’s hard to sell.
• Because the store owner hasn’t invested in your pieces, it may mean less commitment from them to make that sale. Pieces they’ve paid for and own may take priority.
• You must be very organized with each item they’re given, what sells and what is being returned to you. Don’t rely on the store to keep track of it for you as mistakes can happen and you have more risk if an item goes missing.
• Depending on your consignment agreement, you may be responsible for dropping off and picking up your stock. 
• Items are often shop-worn by the time you get them back (if they haven’t sold), which requires more work to repair, steam, re-tag, etc. so they’re ready for you to sell. 
• You’re putting your trust in the storeowner that they’ll pay you on time and take good care of your products. You should always do your homework to find out if they are a reputable company.

 

When to avoid consignment

You may want to avoid consignment deals if:

• You make very seasonal or time-sensitive products  – if your products follow trends that are in one season and out the next, you’re taking a risk by loaning them to a consignment store that may or may not sell them. If you give your seasonal product to a store and they return it 2 or 3 months later, you may then be stuck with that product, unable to sell it because it’s out of season or out of style. You then take on the entire loss.

 

• You have limited stock – if you’re only able to create a few pieces each month, you may not be able to keep up with the demand to stock your online store or craft show booth and a consignment shop. The consignment shop will typically want a collection of your products to create a display; they don’t just want one or two pieces to float around their store. If you don’t have the hours or ability to create a lot of stock, you may prefer to place the stock you do make, in sales channels you have more control over (and can adjust pricing, test different marketing methods, etc.). Once you place your stock in the consignment shop, it’s in the store’s hands and they may or may not make the same effort you would to get it sold.

 

B) Selling Handmade Wholesale

A wholesale agreement is when a retailer places an order for your products and pays wholesale prices. They may pay you when they place the order or net 30, 60, or 90 days. Net 30/60/90 may mean a few different things, but basically, you’ll be paid 30/60/90 days after an event. That “event” may be invoicing, shipping, or receiving (e.g. they send you a cheque 30 days after you ship the product).

You get to set your wholesale prices and how much of a discount you offer, but typically, retailers expect wholesale prices to be 50% of the retail price.

This discount allows the retailer to mark the products back up by 50%, to your retail price. When they sell your product in their store, that 50% markup covers their store’s costs and gives them a profit.

 

Wholesale Pros

• You’re getting paid upfront for your products so you know how much money you’re making each month, from each store.
• Store owners have an invested interest in selling your goods because it means a loss for them if they don’t.
• They own that product so if it goes out of season before it sells, or is lost, stolen, or damaged, it’s in their hands and doesn’t affect your bottom line.
• You can set order minimums to be sure you’re making enough money to warrant selling your products at wholesale prices.

 

Wholesale Cons

• There’s a little less wiggle room with wholesale sales. If your products don’t sell the first time around, the store owner likely won’t risk buying more stock from you. 
• You need to be capable of filling orders by their deadlines. Retailers typically buy for a season, months before that season approaches, so you must have product collections designed, lookbooks made, and orders filled ahead of schedule. 
• Once a store buys an item from you, they own that product and are free to display it and sell it in their store as they please (unless you have them sign contracts agreeing to specific terms), which may not be cohesive with the brand and image you’ve built. 

 

When to avoid wholesale

Your craft business may want to avoid selling wholesale if:

• You don’t have good profit margins – Retailers expect a significant discount on your products (typically 50%). If you haven’t set your prices properly (here’s the right way to price) or have high costs and low profits, wholesale may not be the path for you. When you sell your products at 50% off, you must still be able to cover your costs and make a profit from that sale. If you can’t do that, you’ll either have to adjust your prices or avoid selling wholesale.

 

• You have a hard time keeping up with sales – If you have a booming business as is and are approached by a retailer wanting to carry your products in their store, it’s okay to say no. As a handmade business, you’re likely doing everything yourself and may not have the time or ability to fill more orders. Unless you have high marketing and sales costs, you likely make more money when you sell directly to consumers. If you have the demand, keep feeding that channel. Taking on wholesale orders means more work but less money. That extra work may be better spent growing your Etsy shop/website/craft show network, etc.

 

Consignment vs. Wholesale Agreements

Whether you sell consignment or wholesale, make sure you have an agreement in place that covers the basics such as how much you’ll get paid, when you’ll get paid, etc.

There are a few more grey areas to cover with consignment agreements, such as who’s responsible if your product is stolen, lost, or damaged while in their store. Here are a few important terms to consider: Key Terms to Negotiate for a Consignment Agreement