The management of the repair, rental and consignment sale of products is made possible thanks to this revenue-generating model: ReCommerce.
New model: new questions.
Many entrepreneurs buy into this business model and wonder how to calculate consignment inventory.
To calculate your consignment inventory, you must:
You can calculate your consignment inventory with the help of tools like a point of sale software or do it the old-fashioned way: paper and a pencil.
First, let’s make sure we understand what consignment is and its components so that we can calculate your consignment inventory.
The principle of consignment is based on a business model where the retailer does business with a seller or shipper in order to sell their merchandise while keeping part of the profit made.
Retailers who use this model are often specialized retail traders who take advantage of the diverse product offerings they can acquire.
- Ex. thrift stores and jewellery stores.
Sellers are, in general, owners of personal goods who wish to use the retailer’s window to sell their goods more easily by giving up part of the profit.
The companies or stores that operate this model are more than usual warehouses storing multiple types of products thanks to the prevalence of e-commerce in recent years.
- E.g. eBay, Etsy, Amazon, Craigslist.
Current Portrait of the Consignment Model
This sales technique is constantly increasing (especially in North America) with the popularity of ReCommerce which is slowly making its way into today’s market. Consignment can also make it possible to sell goods and services in a sustainable way by limiting the consumption and waste of resources and the production of waste.
Consignment can easily become a new source of income.
ReCommerce consists of revaluing practices such as rental, repair, purchase of used products, sales on consignment and product exchanges within a company’s economic model for responsible use of resources.
The Goals of ReCommerce
With ReCommerce, we can review our way of consumption in order to build a responsible and sustainable economy by optimizing the use of the resources already existing in our society.
- Giving new life to goods and services
- Increasing the use of products
- Extending the lifespan of products
In short, consignment is a sales method that should be exploited for any business wishing to increase its income in today’s market.
Products Commonly Sold on Consignment
To help you identify the products most often sold on consignment, here is a list of products commonly found on retail shelves:
- used clothing;
- sports equipment and materials;
- musical instruments;
Now, let’s take a look at how you can calculate your consignment inventory.
How to Calculate Consignment Inventory?
Now that you know what consignment is, here’s how to calculate consignment inventory.
Step 1: Establish a Listing of Your Inventory of Consignment Products
Above all, you must ensure that you have an accurate inventory and that your pre-inventory balance is impeccable! Inventory control is an essential element for the management of your business.
There are several ways to calculate consignment inventory; that said, here are three:
A point of sale software can offer features such as the management of commercial transactions and consignment easily. This essential tool also allows you to manage inventory, sales, and track daily, monthly or yearly statistics.
When a store wishes to implement consignment sales, it is advantageous for the latter to use a powerful point of sale software that has consignment functionality such as Alice POS.
This method consists of calculating the consignment inventory with the help of a notebook and a pencil. Some entrepreneurs (like you perhaps) still use this method to manage inventory and it is not error-free or perfect.
Spreadsheets can be more interesting compared to the paper inventory, but this technique does not have all the functionalities specific to the calculation of consignment inventory.
- Microsoft Excel;
- Google Sheets;
- Numbers from Apple.
The following table summarizes the benefits of each:
Remember to frequently quality control your consignment inventory in order to reduce the risk of error in it and loss of time.
Step 2: Subtract the Seller’s or Shipper’s Portion of the Consignment Product Sold
At this step, you will need to remove the seller’s portion of your profits.
This portion may vary depending on the agreement you have reached with the seller. As a retailer, you will be able to offer the seller several types of commissions and you will have various ways of calculating these commissions.
Types of Commissions for Products Sold on Consignment
To find out more about the types of commissions on sales on consignment, here are the three most common types of commissions:
This commission is quite common. The classic and common formula where the retailer asks for a fairly fair commission of around 40 % of the profits from the sale.
This commission of around 75-90 % is intended to induce the retailer to sell the seller’s product. The seller will agree to give a larger profit commission to the retailer in exchange for the retailer’s efforts to sell the seller’s product. This commission is also called the del credere commission.
- Ex. Vehicles, items sold at a mall counter.
This type of commission is based on the quality of the items (wear, colour, style) which may vary. The retailer grants himself a fixed commission of approximately 30 % and he modifies the consignment by ± 10% depending on the condition of the product or that he must sell.
- Ex. Video games, collectibles.
Here is a chart that illustrates the percentage (%) profit that both the retailer and the seller will earn from the sale of a consignment item.
The Best Way to Calculate Consignment Inventory
Once you know the right commission to pair with the right product, you need to carry out this commercial operation in a simple and time-saving way.
The best way to calculate consignment inventory is by using a point of sale software that can handle this business operation.
With a POS software made to manage consignment and calculate consignment inventory, it will be easier to follow up with your customers (vendors).
Remember that even if the products you sell are consignment items, the standard rules of Canadian transactions still apply: you have to charge the taxes.
Indeed, GST/HST and QST are applicable when selling an item on consignment.
Step 3: Update the Inventory After the Sale
The third and final step is to update the post-inventory following your sale. Subtract the item or product sold from your consignment inventory so that the inventory is balanced.
This will allow you to maintain a balanced inventory and be ready for the next sale and consignment inventory calculation.
An Efficient Way to Update Inventory After the Sale
For your convenience, use a point of sale software that allows you to program into the system not only the price of the item, but also the percentage of the deposit that you will pick up the client. In this way, once the data has been entered into the system, this point of sale software will automatically manage the sale on consignment as well as the subtraction to be made in your inventory.
You can save time while being sure of the quality of your service. For example, the point of sale software from Alice POS offers different features that will facilitate the deposit, such as continuously tracking the items in the deposit and therefore being up to date on the status of these.
Equip yourself with a POS software with revenue-generating features tailored to your needs to perform an efficient consignment inventory calculation. Establish an organized inventory, use the tools at your disposal to your advantage, and remember to update the inventory again before the next trade operation.