Boost Profits Dramatically With Consignment Sales

Consignment sales, once handled properly, can be an extremely moneymaking know-how of boosting sales margins through the roof. Here's the how and why...

If you sell products with high turnover, such as computers, electronics, books, CDs, and similar items, consignment sales, once handled properly, can be an extremely moneymaking know-how of boosting sales margins through the roof. Because of the explosion of online auction sites like Ebay, consigned products can besides be used to greatly expand your target market and reputation for excellence.

Standard retail margins are extremely limited because of stiff competition. You can only mark up an item so more before it becomes unsellable. Galore items barely cover their cost of sale, let alone provide substantial profits. Galore computer and electronic retailers especially have shifted their attentions to after sales profits through extended services and high priced accessories. Consignment and used product sales allow you to recover a tremendous profit margin by leverage your expertness and the reputation of your established business.

How?

Suppose you buy a product which you enjoy for one year, and then will to sell. You cognize the risks of buying used, and so do your potential buyers. As an individual, you have no ability and no will to offer any kind of guarantee or support; you just want to sell the item as is and be done with it. Thus, the cost you can command for the product is just about 50% of current retail, or less.

As a business, you can offer galore perks that individuals cannot. Thus, you can purchase or consign products at the standard used price, but sell them for more, because you are providing the guarantees that move with buying from an established retail shop. In this situation, everyone wins: you earn a substantial profit, the buyer gets a great product at a lesser price, and the consigner sells the product through your shop. With every sale you are actually earning two customers; the buyer and the consignor.

However, as a retail merchant you are assumptive all the risks of buying and merchandising used products once you offer consigned merchandise. To benefit from the high margins and accrued product lines accessible through consignment sales, you must strictly adhere to certain guidelines.

You Must Have A Consignment Contract

An absolute must! Consignment items can prove really tricky, really quickly! You must have a specific, comprehensive consignment contract which must be signed by all customers departure a consignment item, and there can be no exceptions.

When you obtain a consignment item, you have no cognition of the item's history, level of functionality, or problems. You can expect that galore customers will "stretch the truth" a bit, in an attempt to ensure the sale of the product. It is your responsibility to cautiously check all the features of the product to ensure that it is functional and available for sale, or easily fixable before being available for sale. Of course, all repair cost should be considered before offering a consignment fee to the seller.

Your contract will cover your limited liability for the product in case of damage or theft, the exact manner in which the consigner will be paid their fee (how much, when, and according to what method), and will specify what situations may warrant the return of the consigned product. Extremely important is an agreement as to how more time the client must leave the item on consignment. Our shop chose 60 days to stem the temptation for the client to sell the consignment item through another channels, and then request the item back from our shop. At this point, we had likely invested with time to repair it, prepare it for sale, and possibly even as smitten a deal with a buyer on the product. In several cases, we may have actually oversubscribed part of the product if placed in consignment as a system. Do not leave thing to speculation or common sense; spell it out in the contract, so there can be no misunderstanding between your business and the consignor.

I understand that this can be really complex if you have ne'er offered used or consigned products in your business. East Point Consulting can assist you with an low-cost consultation on offering consignment products, and taking advantage of the substantial profit margins and accrued inventory they offer your business. Don't miss out on this really exciting chance for a retail shop. Please don't hesitate to give us a call or send us an email.

Track All Consignments Cautiously

Misplacing a consigned item, or merchandising it and neglecting to pay the consignment fee is a overriding error that will cost you dearly. All consigned items must be cautiously caterpillar-tracked according to date consigned and who is the consignor. You must besides track the cost of the consigned item so that you do not undercut it and lose money. Consignment fees, even as on similar products, vary greatly according to the perceived value the consigner has placed upon the item at time of consignment. One client may demand a more higher cost for his consigned product, piece another may only will to obtain a small consignment fee upon sale. You should use this spread to your advantage to earn the largest profit you can from each item, piece paying the consignment fee that does your client happy.

Consigned products can besides be split, but this once again requires especially careful tracking. In our shop, we often received entire systems for consignment, but customers would-be always want to divy up the merchandise according to their own needs, buying a piece here and a piece there. This requires not only an effective trailing system, but an evenhanded fee and return policy as well. Our 60 day policy worked well, allowing us to divide and sell products from a consigned system without fear of the consigner requesting the return of their items after we had oversubscribed half of them. We besides enforced a blanket fee policy on systems, paying the consigner for the entire system, rather than a fee for each item in the system. This greatly simplified accounting, and allowed us to sell smaller items in the system without having to send out bantam checks to our consignors. Our know-how was to pay the entire fee upon the sale of the most big-ticket item in the system, whether it oversubscribed 1st or last.

Returning Consignments

If a product is not going to earn a substantial profit or offer incentive to another purchases, or is in unsellable condition, you must return the consignment. A really substantial percentage of products we received for consignment were damaged, or otherwise unsellable due to serious cosmetic flaws or another problems. Our policy, as fixed in our consignment contract, was extremely inflexible in such matters because of the high percentage of client flak we received in such cases.

We found that a larger than expected percentage of customers consigning products would-be offer us dysfuntional items without explanation. We would-be invest time into testing the products only to find they didn't function properly, or at all. Upon career the customer, we would-be hear those celebrated words with which every repair agency is familiar: "It worked fine once I brought it in."

This wasted time and energy evidently didn't fly with us, and didn't help us to offer great consignment products and fee services to our various customers, so we enforced several pretty strict policies:

a. Products offered for consignment must be cleansed and available for sale, and must be in working condition.

b. Consigned items will undergo testing to ensure their funtionality inside one week of consignment.

c. All products found to be evidently dysfunctional will be returned to consignor, and must be picked up inside 15 working days or they will be disposed of.

d. Items requiring repair or part replacement will have their consignment fees down accordingly. Items requiring cleansing will be assessed a $15 cleansing fee.

Once we announce these policies, a strange thing happened. We no longer had any of these problems. We ne'er assessed a cleansing fee. We ne'er repaired an item and down the consignment fee. And we only had to toss a defunct item once or doubly in a year, after it had been left in the shop for months. Customers knew we were serious just about merchandising quality products, and since they wanted our help in merchandising their items, they brought us items that were, by and large, in nice working condition and available for sale. We did sometimes have to repair items, but we just called the consigner and discussed the cost of repair, (parts only, we ne'er charged labor to repair consignment items!), giving them the option of having us repair and sell it, or having the item returned.

Fee vs. Percentage

Every store I've ever placed items for consignment with has paid me a percentage of the merchandising price. This is logical, but not effective. It introduces mystery into the merchandising process, and mystery creates anxiety in the consigner and the large potential for unmet expectations. If I consign an item that is worth $75 to me, and the retail shop sells it for less than expected and only pays me $50, I am now disappointed, and may even as feel cheated. I may even as suspect that they actually oversubscribed it for more, and told me they oversubscribed it for less in order to give me a smaller percentage. This is not good. Instead of acquiring two happy customers, one who bought the item for less and one who received a healthy consignment fee, the retail shop has gained one client but lost another.

Our shop only offered flat fees for all consignments. No percentages. If you consigned an item with us, you knew exactly how more you would-be be paid upon its sale, if it oversubscribed (95% or more consigned items oversubscribed inside the 60 day consignment period). If we discounted the item or oversubscribed it at cost as an incentive, you didn't cognize or care. You still received the fee as agreed.

The result was many, galore happy consignors. Even as more importantly, customers felt really comfortable offering consignments to us because they knew exactly what to expect. We told them how more we could pay, and gave them a receipt once they signed our contract. There were no surprises and the process generated no anxiety from customers who disquieted their items would-be be oversubscribed for less by several hyper active sales rep.

In the rare cases wherever either a lesser offer was ready-made on an item that hit below our cost, or an item lost value because it sat on the shelf, we just called the consigner and explained the situation as clearly as possible. We left it up to her whether to retrieve the item, or allow us to sell it for a lesser price. In these instances, I always sent a copy of the purchase receipt with the consignment fee, so she could so see what her item was actually oversubscribed for.

Cash, Store Credit, or Trade

If high profits and extended inventory aren't enough, galore customers lief take store credits or trade items in stead of their consignment fees, saving you from parting with cash. We offered great incentives for customers to choose credit or trade. If our consignment fee was $50, we would-be offer $75 in credit or trade. This established extremely popular. We did place several limitations on what could be purchased through store credit or trade to avoid losing money on items with minuscule margins.

Mail Consignment Fees On Time

Many folk who consign their products are hoping they will sell as shortly as possible. Do not let down them with late fees. I mentioned earlier in the course that our shop paid all its bills on one day each month. The single exception was consignment fees, which were paid inside one week after the item's sale.

This bucked up customers to tell their friends just about their product, for sale at our shop, which dilated our client base. It besides avoided the embarrassing situation of a client coming into your shop to check on their item, finding it sold, and then truly difficult their payment. Do not offer to sell consignment items if you are not committed to paying the fees on time, or the entire plan will backfire on your business.

Again, consignments can be tricky, but we can offer your institution assistance in developing a fair and profitable consignment and used item sales plan. It is a dynamite way to increase inventory and sales margins, piece involving your customers in a way that nothing else can. Customers who earn money through your sales channels will become your greatest spokespeople, generating loads of free advertising and promotion for you in an attempt to help you sell their items. They will besides become acutely interested in the success of your business because they will see it as a possible source of revenues for them from time to time as they have products to consign with you.

Consignment actually is a win-win situation that you cannot afford to miss.

This article is just 1 of 84 lessons taken from our affordable, life-changing coursebook for small business owners, called: Take Charge: Proved Strategies to Improve Your Business and Reclaim Your Life Today! Accessible in Paperback, Adobe PDF (eBook), and MP3 Audio CD at www.eastpointconsulting.com.

About the Author

Author of the internationally beloved 'bible' of small business management, Take Charge! Proved Strategies to Improve Your Business & Reclaim Your Life Today, Showalter is the owner and founder of East Point Consulting, a small business consulting firm in Los Angeles and Prague. East Point's popular website is packed full of free and dynamic resources for small business owners. Is your business running you? Move to our website now and click on "@sk Dave!" This weekly column answers your email questions, free, with "no-frills small business strategies that work!"