Consignment is an Alternative Sales System, These are the Advantages and Disadvantages

    Consignment is a term that often appears in the business of buying and selling goods. Also known in English as 'consignment', this agreement is often applied in the business plans of goods companies. In the consignment system, generally the owner will entrust the product to be sold by the dealer.

Consignment is…

Retail business actors may be familiar with the point-of-sale system. This business model involves two parties, namely the product owner (consignor) and the retailer (consignee) who sells the product. In order to sell faster, products can be marketed online

So, is consignment the same as dropship and resale? Although often mistaken for the same, consignment is different from the two models. The most striking difference lies in the profits that the dealer gets. As a dropshipper or reseller, the benefits are obtained from increasing the price of goods according to a self-determined percentage. Meanwhile, the retailer's profit on consignment is in the form of a commission from the product owner.

The profit obtained by the consignee in distributing the product is stated in the agreement between the two parties. The selling point agreement contains the percentage of commission given by the consignor and the sales period as a guide for the timing of commission payments and sales results. So, what are the advantages and disadvantages of the point-of-sale system?

Advantages of the Point of Sale System

There are two parties who benefit according to their role in the consignment agreement, namely the consignor and the consignee. For more complete details, see the following advantages of consignment.

1. For the product owner (consignor)

• Can focus activities on product development.
• Save on product marketing costs.
• Save on operational costs, such as rental of warehouses and shops as well as employee wages.
• Can learn other people's sales strategies.
• Gaining public awareness for its products.

2. For retailers (consignees)

• Earn sales commission with relatively low business risk.
• There is no need to pay the owner of the product before it is sold, so there is no loss.
• No need to think about stock items.
• Easy to add product variants.
• You can return the product to the owner if the item doesn't sell

In simple terms, consignment is the preferred method because it offers advantages for both the product owner and the seller. The product owner only needs to provide goods for sale, while the retailer only needs to market the product. The retailer then receives a commission from the consignor for his services in delivering the product to the buyer.

Disadvantages of the Point of Sale System

Like a system, the application of consignment also has some drawbacks. The parties who agree to the agreement consider the possible costs and rewards first. Before applying the consignment, it helps you understand the drawbacks as follows.

1. For the product owner (consignor)

• Has no control over sales.
• Items can be returned if they are not sold.
• Cannot immediately receive sales profits because they have to wait until the sales period runs out.
• Cannot always ensure quality control (quality control) of the product.
• Need to prepare a backup plan if product stock accumulates because it is not sold

2. For retailers (consignees)

• Cannot determine profit or selling price according to their own wishes.
• No profit if the goods are not sold.
• The products sold are owned by other people, not the result of their own production or brand.
• Have to wait for commission payments according to the sales period agreement.
• Does not have a wide space to innovate because it sells products belonging to other parties.

Most of the shortcomings that consignment has come from the possibility of goods not selling. If the product is not sold, the product owner is forced to accept the return of the product, while the seller does not get a sales commission. However, you should not worry about this risk. To minimize this possibility, consider the consignment business success tips below!

Consignment Business Success Tips

Consignment deals can be seen as an attractive business model. The survey also shows a trend of increasing consignment actors by 7 percent per year since the pandemic began. Even so, careful consideration is needed before deciding to become a consignor or consignee.

The consignment relationship is established based on a business contract between two parties. In making an agreement, each party tries to maximize profits. Well, you are advised to choose a consignment partner with the alignment of vision and mission, as well as in terms of products. The types of products traded in the consignment agreement can be adjusted to market conditions and the interests of both parties.