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What is consignment? When you hear the word “consignment," you probably think of second-hand shops, thrift stores, or garage sales. However, the consignment model is not just about the resale of second-hand goods. It has also become a popular option for ecommerce entrepreneurs.

This article will explain what consignment is in ecommerce, how it works, and six ways to approach it.

What Is Consignment In Ecommerce?

Consignment is a method of selling goods in which the seller (consignee) agrees to sell the items on behalf of the manufacturer/wholesaler (consignor) without paying for any stock upfront.

Once the consignment item sells, the consignor gets a cut of the sale. The consignee is also not responsible for storing, shipping, or promoting the merchandise—that is all handled by the consignor.

3 Ways Consignment Works In Ecommerce

1. Dropshipping

There are a few different ways that consignment can work in ecommerce. The first is called dropshipping. The consignee has the items shipped directly from the owner to the buyer. The advantage of this method is that it eliminates the need for the consignee to store or ship the items. 

The downside is that using ecommerce platforms for dropshipping can be more expensive, as the seller will need to upgrade your platform subscription plan to include integrations and plugins—these tend to cost more but allow you to connect your store to marketplaces like Amazon, Alibaba, and Temu.

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2. In-store sales

Another standard method is called "in-store sales." This is when the seller has the consigned goods shipped to their retail store and then sells them in a traditional brick-and-mortar location.

The advantage of this consignment agreement is that the seller can provide a more personal shopping experience for the buyer, as they will be able to see and touch the consignment inventory before making a purchase.

However, it requires more work on the seller's part, as they will need to promote and sell the items at their consignment shop in addition to shipping them.

3. Online auctions

Another option is to sell the items through an online auction site like eBay. The advantage of this method is that it reaches a broad audience of potential buyers. The downside is that the seller will need to pay a listing fee, and they may not get as much for the goods as they would if they sold them directly.

A lot of enterprise inventory management software has plugins that let you connect to popular auction sites globally.

How To Approach Consignment In Ecommerce?

Regardless of which method you choose, there are a few things to keep in mind when approaching consignment in ecommerce so that you can make the most of it.

Create a consignment-focused website

If you're going to sell items on consignment, it's crucial to have a website that is focused on consignment. This means having clear and easy-to-find information about your consignment policies and prominently featuring the consigned inventory you have for sale.

You should also include information about the owners of the inventory so that buyers know who they are supporting when they make a purchase.

According to Roy Morejon, President & Co-Founder of Enventys Partners, "Your consignment website should tell a story. It should explain what you do, how you do it, and why someone should buy from you. If you can do that, you'll be well on your way to success."

Evaluate products and inventory regularly

It's important to regularly evaluate the products you have for sale and your consignment inventory levels. This will help you ensure you are only selling items in high demand and have enough of each item to meet your customers' needs.

Michael Nemeroff, CEO & Co-Founder of Rush Order Tees, reminds ecommerce businesses that consignment is a great way to test out new products without having to invest a lot of money upfront on potentially unsold inventory.

“However, it's important to track which items are selling well and which aren't so that you can adjust your consignment inventory accordingly," he says.

To maintain a high level of customer satisfaction, you should aim to do your consignment inventory evaluations at least every month. You can use cloud based inventory management software, plus some manual audits to ensure things go smoothly.

Price items competitively

When you are pricing goods for sale, you need to be competitive-researching what retail price similar items are selling for and then pricing your merchandise accordingly. You don't want to price too high and risk losing potential customers, but you also don't want to price too low and end up losing money on the consignment sale.

How to Manage Payments to Consignors

Consignors are the lifeblood of your business, so it's essential to make sure that you are managing their payments properly. This means being clear about when and how they will be paid and keeping track of their sales so that you can pay them accurately.

Most consigners prefer to be paid their commission monthly, so you should aim to send out payments around the same time each month. Doing so will show your consigners that you are reliable and responsible and help build a strong relationship between you and them.

Set up a system for managing inventory and accepting orders

To run a successful online consignment store, you need to have inventory management system in place to track inventory and accept orders.

According to Chelsea Cohen, Co-Founder of SoStocked, "Make sure to have a system for tracking inventory levels, so you know what needs to be reordered. This will help you avoid overselling merchandise and frustrating customers."

Chelsea Cohen emphasizes the need for a robust system to track inventory levels. Delve into how specialized inventory management software can benefit this aspect of your business, offering practical insights and solutions.

Inventory management software should be designed to meet the specific needs of your business, and it should be easy to use so that you can keep track of everything easily. There are a variety of consignment inventory management software programs that can help you with this, so you should take some time to research the options and find one that will work well for you.

Re-evaluate your ecommerce setup

Finally, it's vital to re-evaluate your ecommerce small business regularly. This means looking at how you run your business and making changes as necessary.

For example, if you are not selling as many consignment goods as you would like (think unsold products), you may need to reconsider your sale prices or the types of products or consignment stock you offer.

Can Consignment Work for Your Ecommerce Business?

Due to the rise of ecommerce, the consignment business model can be a great way to sell items online, but it's essential to approach consignment work correctly.

Following the tips above, you can set up a successful consignment business and make the most of a consignment arrangement while keeping your customers happy.

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Georgi Todorov
By Georgi Todorov

Georgi Todorov is a digital marketer and founder of ThriveMyWay, where he shares actionable ecommerce and social media tips. Hit him up on Linkedin or Twitter under @GeorgiTodorovBG.