Consignment, wholesale and dropshipping – which one is right for you?

As a growing brand, you may find the search for retailers a little confusing. Thankfully, there are a few different routes you can take to get store owners to take a chance on your product. Whether it's consignment, wholesale or dropshipping, each method has its own pros and cons and you’ll have to weigh them to decide which are best for you.

Wholesale

Building up a stable of regular wholesale customers can help you grow your business. Retailers typically purchase your product at 50% off your regular retail price.

Pros: Wholesale can be profitable and low risk for your business if you get your wholesale terms right. Unlike consignment or drop shipping, wholesale customers purchase your product directly, meaning no returns, unless there is a defect or other problem. Having regular wholesale customers will help you anticipate how much inventory you need to order when it's time to restock.

Cons: The biggest thing to consider when selling wholesale is how low you can go with your wholesale customer discount and still make a profit. Depending on your manufacturing costs, you may have to tailor the amount to ensure you still earn a decent profit.

Depending on the number and size of the stores you are working with, you may need to hire sales reps to negotiate your wholesale agreements. There are many details to consider, like minimum order size, shipping terms and territory agreements.

Consignment

Selling your product on consignment means you agree to place your product in a store, but won’t receive any money until the product sells.

Pros: One of the biggest pros of consignment is that it removes the retailer’s risk, making them more likely to take a chance on an unknown brand. At times when the economy is ebbing low, this will increase the chance of getting your product through the door. Additionally, the consignment rate paid to your by the retailer is often 60%-70%, meaning more money for you than selling at standard wholesale prices.

Cons: Selling on consignment can be risky. You're providing your product to a retailer, in hopes that you'll see a return. Until it sells, your product is in limbo, as you can’t sell it yourself and have little control about how it will be sold.

Before agreeing to a consignment arrangement, set out clear guidelines on how your product will be displayed, how revenue will be spilt and what condition your merchandise must be in to be returned to you. Ensure your agreement includes a time limit (generally 3 months) to ensure the retailer isn’t returning stock you can't sell months after a season has passed.

Dropshipping

This method works best with handmade items or online boutiques. Dropshipping is simply a site or store selling your product to customers, and having you ship the order directly to the customer when it is ordered.

Pros: You retain control of your product, which makes drop shipping lower risk than consignment. Displaying your product on outside websites exposes your brand to new customers and costs you nothing.

Cons: Both you and the shop owner are depending on each other. You need to follow the agreed shipping terms the owner advertises to her customers, and the shop owner needs to forward your commission payments on a pre-arranged schedule. This type of arrangement often works out as a 50/50 split on commissions, so it often won’t net you as much profit as selling your products on your own site.

Whichever method you choose, make sure both you and the retailer understand the terms and conditions of your agreement to ensure a long and happy working relationship.