Wholesale or Consignment Partnerships: What You Need to Know for Your Next Retail Partnership
- Jan 3, 2025
- 5 min read
Updated: Jan 10, 2025
If you’re an independent brand owner looking to expand your business through retail partnerships, chances are you’ve come across two main types of agreements: wholesale and consignment. Understanding the ins and outs of these partnerships is crucial, especially when it comes to negotiating terms that work for both you and your retail partners. In this guide, we’ll break down these two approaches, compare their differences, and dive into the advantages and disadvantages of each. Let’s set you up for success!
What Are Wholesale and Consignment Partnerships?
Wholesale Partnerships
Wholesale is a type of retail agreement where you sell your products to a retailer at a discounted price (the wholesale price), and they purchase the inventory upfront. Once the retailer receives the goods, they are responsible for selling them to their customers and keep the profit margin (the difference between the retail price and the wholesale price).
Example: Let’s say you sell handmade candles for $20 each retail. In a wholesale partnership, a retailer might buy 50 candles from you at $10 each (your wholesale price). They’ll pay you $500 upfront or shortly after delivery, and once they sell the candles, they pocket the additional $500 in profit.
Consignment Partnerships
In a consignment arrangement, you retain ownership of your inventory until the retailer sells it. The retailer displays and sells your products in their store, but you only get paid after the items sell. Typically, the retailer takes a percentage of the sale as their commission.
Example: Using the same handmade candles, you might provide 50 candles to a store on consignment. Once a candle sells for $20, the retailer might take a 30% commission ($6) and pay you the remaining $14 per candle.
Key Differences
Ownership: In wholesale, the retailer owns the products once they purchase them. In consignment, you retain ownership until the product sells.
Payment Terms: Wholesale provides upfront payment or payment upon delivery, while consignment involves delayed payment based on sales.
Risk: Wholesale shifts the sales risk to the retailer, while consignment keeps the risk with you as the brand owner.
Advantages and Disadvantages of Wholesale Partnerships
Advantages of Wholesale
Better Cash Flow: With wholesale, you get paid upfront or shortly after delivery, depending on the agreed payment terms. This means you have immediate cash to reinvest in your business.
No Returns: Once the retailer places an order, it’s their inventory to manage and sell. You don’t have to worry about unsold items being returned.
Predictable Revenue: Wholesale allows you to forecast revenue more accurately since you’re paid in advance for bulk orders.
Disadvantages of Wholesale
Harder to Land Deals: Retailers are more hesitant to commit to a wholesale order, especially if they’re unfamiliar with your brand or unsure how your products will sell.
Lower Margins: Selling at wholesale prices means a smaller profit per item compared to selling on consignment or directly to consumers (DTC).
Bulk Production Risk: If you produce inventory for wholesale and fail to land deals, you’re left with excess stock.
Pro-Tip: Usually wholesale prices are 50%-60% lower than your retail price. For example if you sell candles at 20$ per piece, you'd sell them in bulk to a wholesale partner at 8-10$ per piece. The discount is quite steep, so make sure you price your products right from the start!
Advantages and Disadvantages of Consignment Partnerships
Advantages of Consignment
Easier to Secure Deals: Retailers are often more willing to accept consignment arrangements since they don’t have to commit financially upfront. This can help you scale your B2B partnerships quickly.
Test Market Fit: Consignment allows retailers to test your products with their customers, making it easier to build long-term relationships if your items perform well.
Increased Exposure: Your products gain visibility in stores, potentially driving brand recognition and future sales.
Disadvantages of Consignment
Cash Flow Challenges: Since payment depends on sales, you may experience delays in receiving revenue. Meanwhile, you’re covering the cost of production and delivery upfront.
Inventory Risk: If your products don’t sell, you’re responsible for taking them back, which can lead to deadstock.
Tracking Sales: Many retailers lack systems to track consigned inventory effectively. To avoid lost sales opportunities, you’ll need to regularly request sales reports and restock as needed.
Which Partnership Is Right for You?
The choice between wholesale and consignment depends on your brand’s goals, resources, and current stage of growth. Here’s a quick guide to help you decide:
Choose Wholesale if:
You need consistent cash flow to scale production or fund marketing efforts.
Your products have a proven track record of sales.
You prefer to minimize the risk of unsold inventory.
Choose Consignment if:
You’re a newer brand looking to break into retail quickly.
You want to test your products’ performance in different stores and markets.
You have the financial bandwidth to wait for payments and manage inventory risk.
Negotiation Tips for Both Partnerships
Regardless of which partnership type you pursue, negotiating favorable terms is essential. Here are some tips to help you navigate the process:
For Wholesale Deals:
Offer Introductory Discounts: To overcome retailer hesitations, consider offering a small discount on their first order as a gesture of goodwill.
Set Clear Minimums: Protect your margins by setting reasonable order minimums that make the deal worthwhile for both parties.
Negotiate Payment Terms: If a retailer can’t pay upfront, discuss options like net 15 or net 30 payment terms to keep your cash flow steady.
For Consignment Deals:
Request Regular Sales Reports: Establish a clear schedule for receiving updates on sales and stock levels to stay informed.
Set Time Limits: Negotiate an agreement that allows you to pull unsold inventory after a specific period (e.g., 90 days).
Ask for Marketing Support: Encourage retailers to promote your products in-store or on their social media to drive sales. Make sure to provide them with up to date images, so they always have new content to share.
Pro-Tip: Remember that in a retail partnership, nothing is set in stone, and you can re-negotiate agreements with your stockists. Perhaps in the beginning a consignment deal was good, but now you want to transition to a wholesale partnership. Transparent communication and optimised stock levels are key in creating a successful partnership for both you and your retail partners.
Final Thoughts
Both wholesale and consignment partnerships offer unique opportunities for independent brands to grow their retail presence. By understanding the pros and cons of each model, you’ll be better equipped to choose the right approach for your business. Whether you prioritize cash flow or market exposure, the key is to negotiate terms that align with your goals and set your brand up for long-term success.
Ready to land your next retail partnership? Start by evaluating which model fits your brand best and reach out to retailers with confidence—your dream partnership is just around the corner!
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