Understanding The Consignment Business Model

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There are several business models that E-commerce businesses can use to sell goods. The consignment method is increasing in popularity as an option as it offers a lower-risk approach for more people to participate in the e-commerce business landscape.

In this article, we will explain what consignment is, discuss the pros and cons of consignment selling, and provide you with tips on how to get started.

What is consignment?

Consignment refers to a business model in which the Business Owner, referred to as the consignee, agrees to pay the Supplier, or consignor, a commission proportionate to the proceeds of a product when it is sold to a buyer. Most consignment shops tend to specialise in a particular type of consumer product, and receive products from several suppliers or consignors to sell.

The consignment model is effective for new business owners as you do not need to invest money up front; and you only need to pay when a sale is made. It can also be less time-consuming than sourcing and creating your own product or managing its production. Instead, you will simply act as a middleman between your customer and the supplier. As such, you can focus on other areas such as marketing or customer service.

Pros & Cons of the Consignment Model

Pros for Business OwnersCons For Business Owners
Less capital required as you do not need to pay up front for inventory to sellAble to rotate out products that are not sold without having to carry dead stockCan focus on other aspects of the business such as marketing and customer relationship management Commissions are usually paid monthly, which improves cash flowResponsibility is on the consignee to manage, market, and sell the consignor’s productMay have to experiment with different types of products before finding a niche market
Pros for SuppliersCons For Suppliers
Lower costs as it reduces the need to have e-commerce platforms or set up a retail storefront Provides a chance for brand to test market interest in their product offerings in overseas markets Runs the risk of the consignment store not being able to sell inventoryCash flow is based on the consignment period established by the specific store

Consignment Arrangements

Each consignment shop and consignor will ultimately create their own consignment arrangement. Contracts are put in place to benefit both parties and avoid any possible miscommunication in the future that can lead to unexpected losses. The contract will usually highlight the following:

  • Shipping policies, costs, and lead time
  • A mutually agreed upon sales commission rate of the consignment inventory arrangement.
  • A return policy for goods that are not sold within a time period

Tips for doing consignment for e-commerce businesses

1. Identify your target market

Before starting a consignment business, you must have a clear understanding of your target market and what kind of merchandise you will market to them. If you can define your niche, you can build your reputation more easily and earn both suppliers and buyers more easily.

2. Build a business plan

For a start, a business plan must detail your financial undertakings for running the business. This will include costs of running the consignment business as well as the sales and profit targets. This will give you more insight before selecting the merchandise you want to sell, as well as selecting a supplier with fair prices.

3. Select A Suitable E-commerce Storefront

As a seller of the consignment products, this is the most important step as you are responsible for ensuring that the products get delivered to your end customers. The right e-commerce storefront can help you simplify several day-to-day processes such as tracking of orders and inventory, as well as paying out commissions to the consignors. It is also important to think about a platform with various e-commerce logistics solutions such as one that is partnered with local fulfilment partners to cut down on shipping costs and lead time, resulting to customer satisfaction. 

DHL Express’s Role As A Logistics Partner for Locad

DHL Express Singapore acts as a shipping partner for Locad by helping Singapore based e-commerce businesses complete their last-mile delivery. Our international courier service is also responsible for providing a customised door-to-door e-commerce logistics solution for consumers in Singapore. 

No matter how big or small your shipments are, our team of certified international specialists will be there round the clock, serving you with passion, speed and a positive can-do attitude.

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