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How does consignment work? Commission, payouts and risk

Published · Business deals, money and releases

In a consignment, the owner of goods (the consignor) leaves them with a shop, gallery or reseller (the consignee), which sells them and keeps a commission. The consignor keeps ownership until each item sells, and is paid only when it does.

How it works, step by step

  1. Both sides agree the terms and list the items, each with a description and a minimum price.
  2. The shop displays and sells the items, in store and sometimes online.
  3. When an item sells, the shop keeps its commission and pays the rest to the consignor on an agreed schedule, with a statement of what sold.
  4. At the end of the consignment period, unsold items are collected, marked down or left for a further period.

Consignment or selling to the shop?

If the shop buys your goods outright (wholesale), you are paid at once and the shop carries the risk of not selling, but you get a lower price. On consignment you usually get a larger share of the sale price, but only when an item sells, and unsold stock comes back to you. Consignment suits one-off, higher-value or slow-selling items; wholesale suits steady products a shop reorders.

Typical commission

It depends on the trade: often 20% to 40% for clothing and furniture consignment shops, and 40% to 50% for galleries. Just as important is what the commission is calculated on. Say whether it is a share of the price before or after sales tax, discounts and card fees.

What the agreement should cover

  1. The item list: description, condition and minimum price for each item.
  2. Ownership: the consignor owns the items until they are sold.
  3. Where items are sold, and whether online sales are allowed.
  4. Discounts: whether the shop may mark items down after a set time, and never below the minimum without consent.
  5. Commission and payout: the rate, what it is calculated on, and when the consignor is paid.
  6. The consignment period, and collecting unsold items at the end.
  7. Items left behind: what happens to them after written notice.
  8. Care, risk of loss and insurance, and how either side can end the agreement early.

Theft, damage and insurance

Items can be stolen, damaged or lost in a fire or flood while at the shop. The agreement should say who bears that risk, and whether the shop's insurance covers goods it holds for others. Consignors should check that it does, since consigned goods are someone else's property and may need to be named on the policy.

If the shop goes out of business

In the US, some consignments fall under Article 9 of the Uniform Commercial Code: broadly, goods worth $1,000 or more per delivery, that were not consumer goods, delivered to a merchant who is not an auctioneer and is not generally known by its creditors to sell other people's goods. In those cases, a consignor who has not filed a financing statement can lose the goods to the shop's creditors if the shop fails. Many states also have laws for artists who consign work to galleries, which often treat the work and the sale proceeds as held in trust for the artist. Check the rules where you sell.

Free template

The free consignment agreement template has an item list with minimum prices, the commission and payout timing, optional online sales and discounts, the consignment period, unsold items and the risk of loss. The free sales commission calculator shows the shop's cut and your payout. To sell an item outright instead, use the bill of sale.

General information, not legal advice. Commercial law differs between countries and states.

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