How Your Consignment Shop Can Be More Profitable

Running a consignment shop is not as easy as it seems.  The simple decor and straightforward merchandizing can mask many business problems that, if left unchecked, will eventually destroy your business.  Fortunately, almost any business can be saved through proper planning and management. Conversely, poor planning and incompetent management of daily operations will doom any business to failure. 

Some consignment shop businesses have a hard time determining how they are going to procure items for sale.  Consignment shops work in two ways.  They will either offer an upfront payment for merchandise, or come to a profit sharing agreement.  Some shops only operate as one type or the other.  Consignment furniture stores usually only use profit sharing.  This can limit the number and quality of goods you have for sale, causing you to miss out on potential business.  Consider using both methods to build an inventory of quality items for sale.

Managing upfront payments can be done in two ways.  Some people prefer to receive cash for their goods.  This is good for the seller, but there is another way that will mean more profits for the business. Consignment shop businesses often offer in store credits for merchandise they accept for resale.  When offering such a credit, consider your standard markup rate and offer a credit that is a higher dollar amount to the seller than if you paid cash, but uses the markup percentage to lower your actual cost and increase your profitability.

Profit sharing is another way for your consignment shop to acquire inventory at little to no cost.  Consignment furniture stores often operate this way.  With profit sharing, the store comes to an agreement with a seller as to the sales price for the merchandise, and the way the profits will be split.  When the items are sold, the sales are then split between the store and the seller.  Thus, the consignment store doesn't have to buy the items to be sold, saving the business a large amount of capital. 

Which way the business will operate depends on the consignment shop business plan.  No business should ever be started without a business plan.  A consignment shop business plan will include the methods of acquiring inventory, mark up rates, standard profit sharing percentages, and all costs normally associated with running a business.  Without a plan, costs can get out of control very quickly.  Operating a business without first creating a business plan is one of the most common reasons why small businesses fail. 

While you might think running your shop without the latest technology will save you money, you are wrong.  Consignment shop software can help you achieve more profits and better manage your profitability.  This software will run your Point-of-sale system, and integrate it with your back office computer to help you manage your inventory and sales.  With consignment shop software, you will have a much easier time paying you profit sharing sellers, tracking your sales, and determining which items sell better than others.

How you choose to run your consignment shop is an important business decision that only you can make. The way that you accumulate inventory for sale can weigh heavily on your profitability and negatively affect your profits.  Referring to your business plan can help you stay on course and away from traps that suck the profit out of your business.  And, investing in computer software is essential for anyone who needs to do a better job managing their inventory and tracking their sales and profits.  As the economy continues to struggle, there is a real profit opportunity for a well-run consignment store as an alternative to higher priced department and retail stores.

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