Consignment selling is a low-risk method where the supplier directly ships the goods and the seller does not need to stock the products. The seller directly provides the customer order and shipping information to the supplier, and the supplier directly ships the goods to the customer, while the seller earns the difference between the supplier price and the retail price. As a seller, there is no need to worry about inventory backlogs, and there can even be zero inventory. This is different from the traditional sales model, where retailers have no substantial contact with the products from beginning to end. The suitable groups, advantages, disadvantages, profits and risks of consignment products are as follows.
(1) Suitable groups.
Consignment selling is a good choice for starting an e-commerce business. It is suitable for people who do not pay much attention to profit margins, do not need to manage inventory, and want to have a preliminary understanding of e-commerce operations. If sellers want to do this model, they can directly contact manufacturers that provide this service, or cooperate with some e-commerce platforms that specialize in consignment selling. For example, the World Wide Brands platform is a platform that cooperates with hundreds of manufacturers. Sellers can sell thousands of products on the platform on behalf of the platform without having to keep in touch with each manufacturer. However, it should be noted that although these aggregation platforms make it easier for sellers to sell a variety of products, they often charge a certain fee. Many platforms require membership fees or registration fees.
(2) Advantages.
● Low startup cost: No need to purchase products.
Low risk: No risk of inventory backlog.
Easy to manage: As long as the basic conditions are met, the business can be easily managed from anywhere.
(3) Disadvantages.
High degree of competition: There will definitely be many competitors for products sold on consignment, because for suppliers, the more sellers who sell on behalf of the products, the better.
Low profit margin: Because the profit is only the difference between the supplier and the retail price, the profit margin will not be very high.
(4) Profit.
Generally speaking, the profit of consignment sales is usually 15%~20%.
(5) Risk.
The risk of consignment sales is quite low because there is no need to stock and there is no need to worry about shipping costs. However, there are many sellers operating in this way in the market, not only is the competition very fierce, but the profit is also relatively low.
Some merchants have difficulty choosing product channels. Based on the determined products or markets, they may not be able to choose the most suitable business model. The following is a simple classification of products and channels to facilitate sellers to quickly determine the business model.
The product has no specific physical object–self-made/DIY or processing and manufacturing.
Not enough funds–consignment sales.
Products of other brands-wholesale or consignment sales.
Handmade products-self-made/DIY.
Pursue higher profits-processing and manufacturing,
Pursue the lowest risk-consignment sales.
Can withstand certain risks-wholesale.
Can withstand greater risks-processing and manufacturing.
The business model that merchants ultimately choose will affect their overall e-commerce business to a certain extent. Therefore, we cannot only look at the advantages of each model, but also carefully understand their disadvantages and risks, and finally make the right choice.
For Chinese sellers engaged in e-commerce business on Amazon, processing and manufacturing, wholesale and consignment sales are all more feasible ways.