How to Make Money Offering Consignment Service
Updated 3/11/21
Since I started selling second-hand clothes and accessories online several years ago, I’ve been trying to improve my business. That means selling more in-demand items, sourcing items cheaper, and taking better pictures.
One way to source better items has been to offer my selling services for consignment. It’s been a great way for me to obtain more items and make more profit than simply reselling items I’ve found at the thrift store.
Today I want to share how you can start offering consignment to help you decide if it’s right for you.
When I first thought about selling for others, I had lots of questions. You have to deal with more issues and concerns than you would if you were selling only for yourself.
You have both clients (the people you provide you items) and you have customers (the people who buy your items). It can be hard to please them all. Some other questions came to mind:
What do I want to sell for others? Only clothes and accessories or household items like books and sports equipment?
What percentage of profit should I keep and return to my client?
What do I do if a consigned item doesn’t sell?
Do I have to pick up items myself and store them in my house?
Is it profitable to offer consignment services?
I’m sure I’m not the only one with these questions. Probably you have many more. I intend to answer as many as I can below.
Disclosure: This post contains affiliate links. This means that I may receive compensation when you click on a product link or purchase an item linked on this site. Click here for details.
**By the way, if you don’t have a Poshmark account, you can receive a free $10 bonus when you sign up with my code SFGIRL2015.
** On Mercari, you can currently get $10 when you sign up with the code JENMHM. The amount varies by promotion.
What is consignment?
Consignment is when a shop or person attempts to sell an item for the item’s owner. When the item sells, the shop/person keeps a certain amount of the profit and the rest goes to the original owner.
Pros:
Limited monetary investment. You don’t have to spend money to obtain goods to sell as you would if you were buying items wholesale or at thrift stores. You only need access to people who have items worth selling. You might need a small amount of funds to cover shipping and promotional materials while starting up.
Limited risk involved. If you sell the item, you make money. If the item doesn’t sell, you return it back to its original owner without losing money. In doing so, there’s not much risk of you losing money.
Save time. You can screen your clients and their items to know if they’re worth selling, thereby limiting your time procuring items. When you thrift shop for goods to sell, you can spend hours looking through huge stores with or without much like finding goods to sell.
Cons:
Potentially less profit. When you sell for someone else, you split the profit. That means that you could end up with less money than if you sourced other items, sold them, and kept 100% of the profit.
Dealing with difficult clients. Any time you have a business in which you serve others, you’re going to have difficult clients. This is in addition to dealing with difficult customers, which happens at times as well.
So why offer consignment?
First, you may not have a lot of inventory to sell.
You might not live near thrift stores, have a hard time getting out of the house, or be unwilling to spend hours sifting through thrift stores.
You might have already sold everything of value in your own closet, and need to get your hands on more in-demand items to sell.
Offering consignment is profitable and can be a good use of your time.
Lots of items are in high demand even second hand: phones and certain electronics, high-end baby items, and designer clothing and accessories. If you can find a way to sell these, you’re likely to make money.
Even if you don’t have these items, there’s money to be made selling other items like regular clothes and household items.
Compare this to some other side hustles and this one is an easy winner. Selling consignment can be very profitable, even if you share the profit with others.
You can fill a need for consignment services.
Believe me, potential clients are out there. These are people who don’t know how to sell or don’t have the time to sell.
They don’t want to do research or don’t know where to research pricing their items. They don’t want to deal with the hassle of shipping items or focus on customer service.
But they do want the money that comes from selling their goods, and they’re willing to part with some of the profit because some money is better than none.
You have the skills and the motivation to do it. You also sell online, which provides a much larger audience of potential buyers than going to a brick-and-mortar consignment shop.
How to market yourself
Word of mouth. My family and friends learned that I was making money selling things online and soon they wanted me to sell their things for them too.
These were people who wanted to clear out the boxes and clutter in their homes after having lived in the same place for years and raised children.
My friend had to downsize when she moved to a smaller place. You probably know of people like that too.
Post locally and online. My building has a community board where I can post. I talk to my neighbors and can let them know of my services.
There are also websites like Next Door, Facebook groups, and Craigslist where I can market my services.
Provide handouts of your services and results in electronic and/or hard copy form. Some people like to be emailed information. Others still prefer paper handouts.
Create a website/social media profile Nowadays just about every self-employed individual who offers a service has a website or social media presence.
You can create a basic website for only a few dollars a month. Social media sites like IG and Facebook can be done for free.
You can list your services, examples of past sales that you made through consignment, and FAQ. This can save you time in the long-run.
You can direct people to your website for information instead of repeating it for each new client.
How to obtain your items
Consignment can work in a few ways.
1) Purchase items upfront
You pay for the items you want to sell and take ownership of them. For example, a client brings you a lot of items. You review each item and select the pieces you think will sell well for you.
You guesstimate that you can make about $300 in profit off of them and you offer to buy the items for $100. This isn’t the typical way that people of think of consignment but it’s good to consider here.
This method is easier than traditional consignment because you now own the items you sell. You’re no longer the middleman, which can be a difficult position when you have to deal with both clients and buyers.
You don’t have to keep clients informed of how their items are selling and worry about payment schedules to clients.
This method is riskier because you’re stuck with all the items you purchased including ones that don’t sell later. You’re out of money invested into these items.
Another issue is the possibility of obtaining goods that are damaged or counterfeit. You may not notice some damage or be able to discern something counterfeit from authentic at first glance.
If you pay for items upfront and they turn out to be duds, you’re out of a lot of money.
2) Act as an intermediary to sell clients’ items to customers
In this method, a client brings you items, you take possession of the items that you want to sell, you list them, and then pay the original owner a portion of the profit when the items sell. This is the more typical way consignment works.
The benefit of this method is that you reduce the risk of any losses on your part. You can put very little of your money or nothing at all into obtaining sellable items. Once they sell, you make a profit. How great is that!
The downside is that you have to split the profits, no matter how large or how small they are.
If you bought a hot item for $50 using the above method and sold it for $500, you could keep $450. In this method, you would make $250.
Related posts:
Handling logistics & managing expectations
Screening clients
When people learn that you offer a consignment service, they’ll want to pass on their goods to you, no matter how sellable those goods are.
You’ll need to screen them. It’s important to keep screening time minimal.
You can spend a lot of time (too much time, in fact) screening people to determine if you should take on this person as a client and review their goods to see if they’re sellable.
But some people will not turn into clients and you make no money from doing this part of the process. It’s best to streamline this part of the process as much as possible so that you can get to the actual selling.
How do you screen?
Visit the potential client. You take your time and energy to visit someone and see what they have for you to sell, which is disappointing if you don’t find anything worth selling.
Have the person bring items to you. This saves your time and energy. I prefer this method or the next.
Have the person send you information about the items. Ask for pictures, videos, and descriptions of what they want to sell. The person can follow a checklist of questions, essentially screening themselves.
What types of items and brands are their items?
Are the items in good condition or better? I would suggest no rips, stains, holes, or fading to clothing unless it’s high-end or can be fixed.
Are the clothes currently in fashion or vintage?
Ask anything else that’s easy to answer and a determinant for you.
This may be enough to determine whether you want to sell the items.
Example #1: My mom recently told me about her friend who was doing some major house cleaning. Her friend and her friend’s daughters had bags of clothes they were planning to donate.
Knowing that I sell used clothes online, my mom told her what I do and she was eager for me to stop by to see what I could sell.
Unfortunately, my mom is unfamiliar with selling things second-hand so she was unable to screen things for me.
What brands of clothing did she have? What was the condition of the items? Were some of them new with tags?
When I asked my mom for more details, she didn’t know the answers. Her friend lives close by, so it was easy to stop by to look at the items and visit her friend.
I ended up taking only 5-10 items from her many bags of clothing and accessories. I guessed the items would earn maybe $10 per item, enough for a small profit.
But if I had had to invest significant travel time to visit someone I don’t know for those same items, I would have been disappointed. That’s why I think it’s important to ask for details before agreeing to check out or sell items.
Example #2: Someone found my blog in an online search and reached out to me to purchase clothing he was selling. His initial message said he had several hundred items by high-end brands available for sale.
He send me a link to the Poshmark closet where some of the items were listed so that I could get an idea of the clothing for sale. There were items by Diane von Furstenberg, Vince, Milly, and Nike.
Despite the items being name brand, they were not selling well. I suspect this was due to pricing too high and no seller engagement on the platform. This was why he reached out to sell the items to me.
I negotiated price and came way with over 100 pieces of women’s, men’s, and children’s clothing. The brands included Alice + Olivia, Reformation, Theory, Tom Ford, and Ivivva.
Example #3: I saw an ad on an online community board recently for someone offering consignment service. One person who responded said he had a storage unit he wanted to be cleared out.
Have you ever seen the TV show Storage Wars? I could only imagine what’s in that unit and if any of it is worth attempting to resell. This had the potential to be a real dud or a real goldmine.
Since I only sell certain types of items, I would have mentioned that in my initial post to reduce the number of responses that don’t fit my service. This person was very general about his service.
At that point, I would respond to the potential client asking for a lot more information about what’s in the unit so I could assess its resale value. I would tell him about my service, even email a handout or my website, to see if he actually wants to use it.
Be specific about your services
I think it’s important to state your services clearly early in the process. You might find that some people don’t take your business seriously.
Many people are unfamiliar with thrifting, selling things online, or side hustling in general. Some people want to hand you whatever old items they have including junk in an attempt for you to try to sell everything for them for whatever amount you can get.
If you’re running your consignment service as a business rather than a hobby or favor, then you probably consider the monetary value your time.
You’re probably not doing all the work of consignment selling to make $5 an hour. You determine your wage and decide what’s good to sell or not to be compensated appropriately.
You might want to tell people off the bat:
What you sell – I sell clothing, purses, accessories, shoes, small home items.
What you don’t sell – I don’t sell large household goods, counterfeit or questionably counterfeit items, and things in poor or used condition.
Your screening process – I do a quick Q&A to determine what the person wants to be sold.
How they’ll get paid & how much they’ll get paid. - This could be rough estimates of how much you’re willing to pay for their items based on what you know.
Then the can go forward with the consignment process or not.
How to determine profits
I’ve been fortunate that my friends and family have been very flexible with me in terms of how to split the profits of any sales. When they ask, I tell them I split profit 50/50, meaning I keep 50% and the item’s original owner gets 50%.
I’ve split the profits 75/25, keeping 75% of the profit and giving 25% of the profit, at the other person’s offering. Some people tell me to keep whatever amount I think is reasonable or fair.
Setting fees
You could set up service fees if it suits your business. For example, you may want to charge a fee to cover the cost of shipping materials.
It may be as simple as charging $1 per item sold or a set amount like $10 service fee at the start of service. You could also charge the exact amount it costs to ship an item, but that’s cumbersome to track for every item.
I haven’t charged for shipping materials because they’ve been inexpensive or free for me. I recycle a lot of the materials like boxes and air pillows from my own online purchases.
Large and heavy items items can cost a lot to ship. It’s important to note this if it affects shipping cost or materials needed for packaging.
Implement a tiered fee system and promotions to repeat customers.
In a tiered system, the person would pay less in fees if they brought you more items of higher value. You could offer incentives such as covering shipping fees for all items that sell for over $200.
If you have a repeat customer with top-notch items, you may offer that person better terms if they keep bringing you there’re items to sell. You could start out at 60/40 (you keep 60%, they keep 40%) and then move to 50/50.
Managing expectations
It’s important to let clients know what they might expect to profit from their items. These aren’t promises but rough estimates to set realistic expectations.
The more you sell for others, the more likely you’ll find that people don’t know the resale value of their goods. This can be very different than the items’ retail prices. Many items don’t sell nearly as well second-hand.
And people tend to value things more when it’s theirs, so they’ll price things higher or want it sold for more to make it worth letting go.
Example: A relative gave me some purses that were in excellent condition. They were a Macy’s brand, not high-end, but a familiar name with decent quality. The owner told me several times that the purses cost about $75 at the department store, hoping to get something close to that.
I kept them listed for a long time and when they finally sold, I made about $10 in profit on them.
I knew they wouldn’t sell for much because the brand is commonplace and the items were in good condition but not new. My relative did not know this though and was disappointed in how they sold.
This is a common occurrence with people who don’t resell.
How long to sell
When I sell for others, I keep items listed for 3 months before I consider what to do with them.
During that time, I will list it to multiple platforms. I may offer discounts and incentives like a lowering the price of an item by 20% after the first month and an additional 20% after the second month that it’s not sold.
I might also relist the item every few weeks to get it in front of new potential buyers.
After the 3 months are up, I either return the items to their original owner or donate them depending on what we agreed upon. A few times I’ve offered items as a free add-on when another item sold.
How long you list something for is completely up to you. I know some people keep items listed for a year or more.
Handling returns
Returns can be tricky to manage. On the one hand, you might want to allow returns so that you have satisfied customers.
If you sell on a site like eBay, you may find it to your advantage to offer returns. You have to do it to obtain Top Seller benefits on eBay.
On the other hand, returns can come late and make payouts difficult.
This is why I like selling on platforms like Mercari and Poshmark, where transactions are finalized within days of an item’s delivery. You can comfortably transfer profits to the seller without worry of someone opening a case asking for a return and refund.
There are instances in which you may be stuck with a return after you’ve paid the owner. On eBay, if I a person pays using PayPal, they have up to 180 days (about 6 months) to file for a return. That’s a long time!
I would consider this aspect when deciding where to list items and how long before you pay the seller their share.
How to pay clients
Set up a payment system that works for you and your clients. Your clients will want to know your payout methods and dates. You may opt to pay via electronic transfer (e.g., Venmo and PayPal).
You might decide to pay out at the end of each month or at the end of a three-month term for your service. Whatever you decide, be sure to spell it out in your contract.
I’ve been fortunate to have trusting family and friends. They’ve handed me their goods and given me complete control of the selling process.
I list all the items they give me in a spreadsheet. When an item sells, I list its sale price and profit. I mark again when I’ve paid out for the items.
I’ve written checks, given cash, and transferred funds online. No one has complained about the amount of time I’ve taken so far.
Mostly, they’re happy to receive some money for having done nothing on their end.
Contract
A contract protects you and your customers. I recommend having one to use with your clients. It can be basic but should have your terms on it, including all the above information.
If you’re a seller, have you considered offering consignment for others? I know it’s not for everyone.
You have both clients and buyers to manage and please, and it can take a lot of time. But it can be a natural extension of what you’re already doing, bringing you easy access to items to sell and earning you more profit.
There are people out there who have lots of stuff to sell and need someone to help them make it happen. With your service and expertise, that person could be you!
What experience have you had either buying or selling using consignment? What are some other things you would consider when taking on this business and new clients?
