Is Consignment Good For Business?

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What Should The Price Be?

As an artisan and small business owner, deciding how much to charge for your products can be a very difficult process. The right price will attract the right customers and ensure you are making a profit.

Typically there are three approaches to determining your price:

  1. The cost of goods plus a percentage
  2. What the customer is prepared to pay
  3. Competitor pricing.

The only one that you should consider using is #1. The cost plus a percentage.  Cost needs to include materials, tools and studio overhead plus absolutely everything else from the time you spend talking with the customer, to designing the piece, to packaging, business cards and shipping. Every piece you sell needs to cover some portion of all your costs.

 

As far as #2 and #3 go:

  • What people are willing to pay might factor into whether there is a viable market for your product but not what you need to charge for it.
  • What other artisans are making and how they are pricing it may also factor into the viability question but not your price.

 

Your price is about you – your workspace, your materials/suppliers, your skills, your end product delivery – basically, your business model.

 

 

Consignment versus Wholesale

What Should The Store Charge me?

What a gallery or store charges you to sell your product is about them. Their costs are reflected in their markup and the approach they take (consignment / wholesale) is a reflection of the confidence they have in their ability to sell your product.

Typically when a store sells on consignment they take less from you because you are taking the risk as to whether or not it will sell, for example 30% – 40% goes to the store and 70% – 60% goes to the maker. If it doesn’t sell you have to deal with the unsold stock, materials and time tied up with the product etc. When a store buys from you upfront they understandably expect a better deal on the price because they are taking the risk associated with whether or not they can sell it. Therefore they want wholesale prices for example 50% – 60% goes to the store and 50% – 40% goes to you.

 

How Does It Work?

Lets say you would like to make at least $100 in profit on something you have made (factoring in a portion of all your overhead, materials, time etc.).

You could place that piece into a store on consignment with the understanding that it will be priced at $175. whereby if it sells you will receive $105. and the store will keep $70. (a 60/40 split). However if it doesn’t sell you will take it back. The only significant risk to the store is the space it takes up. You, on the other hand, are stuck waiting for a return on your investment of time and money which may, or may not, be forthcoming.

OR

You can accept a smaller profit and sell that piece to a store for $70 wholesale (upfront) and walk away with that cash in your pocket. The store assumes the risk if it doesn’t sell, but if they can sell it they will make $105 (or more if they decide to price it higher).

 

Pressure to Change the Traditional Model

This model has worked for a long time but recently things are changing. With real estate/rent going up and retail sales in decline, store owners want more of the sale price. They calculate their costs going up and so they want a bigger piece of the sale price pie. Pressure from customers make store owners reluctant to raise sale prices but at the same time their costs are rising so they apply pressure to the artisans to reduce their commission.

 

NEWSFLASH!

The costs for the maker are also rising precipitously, so they need more too.

Everyone’s costs are going up, so customers have less to spend.

 

Who loses in this scenario?  That’s right the artisan.

The costs for the maker are also rising precipitously so it is critical that they hold firm on pricing. Artisans have to make a living wage or the artisan economy will disappear.  Here are some recommendations to take to heart (and I know it isn’t easy):

  • If one store won’t or can’t meet your needs look for one that does.
  • If a craft show is opening their doors to poor quality products and/or products that are based on mass-production – don’t give them your business.
  • If a customer says they can get one just like it for less – let them – they are not your target market.
  • If a competitor keeps lowering their price – let them – they may not be in business for much longer anyway.

 

Business 101: He Who Assumes The Risk Gets A Bigger Slice Of The Pie.

If a store or gallery wants to take more than 40% – tell them that’s wholesale and they have to buy your product upfront. Consignment pays you 60% or more.

After all, every time you invest in your materials or tools you are taking a risk. When you decided to work for yourself you assumed the risk. When a store or gallery owner opened their doors they took a risk….so let them assume it!

 

Comments are welcome, we’d love to hear what you think! Mail them Comments@ArtisanOntario.ca