Consignment selling: how it works and what it costs

Selling on consignment means leaving your product in a shop, café or deli that does not pay you when it arrives. They pay only for what sells, usually every week or two, and hand back what did not. For the shop it is an easy yes, because they risk nothing. The risk is yours: waste, expired stock, the trips to restock and collect, and the days you wait for the money. To know whether it is worth it, work out the contribution on what actually sells, counting the cost of everything you left.

How a consignment deal works

• You leave a quantity of product in the shop. It stays yours until it sells.
• You agree the shelf price and your share: a percentage of the price or a fixed amount per unit sold.
• At set intervals you count together what sold, what is still on display and what is near its date or damaged.
• The shop pays you for what sold. You take back expired stock or anything not worth leaving, and restock.

The difference from wholesale is who carries the risk. In wholesale the shop buys from you, pays (on the spot or on terms) and whatever it does not sell is its problem. On consignment, whatever does not sell comes back to you.

What it really costs

The shop's share

This is the most visible cost. If the shelf price is $4.00 and the shop keeps 35%, you get 4.00 × 0.65 = $2.60 per unit sold.

What comes back

This is the cost people underestimate most. Every unit that comes back cost you the same as one that sold and paid you nothing. So the right calculation spreads the cost of returns over the units sold. With short-life products like brownies, cakes or fresh bread, this decides whether the deal works at all. The guide to shelf life and the cost of unsold stock shows how to measure it.

Travel and your time

Dropping off, counting, collecting returns and getting paid are all trips. If each visit costs you $5.00 in fuel and parking and you go twice a week, that is $10.00 that the units sold have to pay for.

Waiting to get paid

You buy ingredients today, bake, drop off and get paid when the stock is counted and settled, sometimes days later. Between buying and being paid can be several weeks, and that money is not available for your next shopping trip.

Worked example: brownies in a café

You leave 60 individually wrapped brownies in a café each week. The shelf price is $4.00 and the café keeps 35%. The variable cost of each brownie (ingredients, wrapper and label) is $1.10. You visit twice a week, once to drop off and once to count and collect, at $5.00 each time.

That week 42 brownies sell and 18 come back at the end of their shelf life.

What you collect:

• Per brownie sold: 4.00 × 0.65 = $2.60
• Total: 42 × 2.60 = $109.20

What it cost you:

• Product left: 60 × 1.10 = $66.00 (all 60, not just the 42)
• Travel: 2 × 5.00 = $10.00
• Total: 66.00 + 10.00 = $76.00

Contribution for the week: 109.20 − 76.00 = $33.20. Per brownie sold: 33.20 ÷ 42 = $0.79.

What it looked like: 2.60 − 1.10 = $1.50 a brownie, times 42 = $63.00. The gap between what it looked like and what it is went on the 18 returns and the trips.

How much has to sell to break even

The break-even point of a consignment deal is the number of units sold that pays for everything you left plus travel:

units sold needed = (units left × variable cost + travel) ÷ what you are paid per unit

In the example: (60 × 1.10 + 10.00) ÷ 2.60 = 76.00 ÷ 2.60 = 29.2. You need to sell 30 of the 60, half of what you leave, just to break even. Everything sold above 30 is your contribution.

This number moves with every input. If the café keeps 45% instead of 35%, you get $2.20 and need 76.00 ÷ 2.20 = 34.5, so 35 sold to break even. With the same 42 sales, your contribution drops to 42 × 2.20 − 76.00 = $16.40.

The adjustment that pays most: leave what sells

Now leave 45 brownies instead of 60. Suppose 42 still sell, because that was the real demand, and 3 come back.

• Product left: 45 × 1.10 = $49.50
• Travel: $10.00
• What you collect: $109.20 (the same 42)
• Contribution: 109.20 − 49.50 − 10.00 = $49.70

That is half as much again, selling exactly the same number. It is tempting to fill the shelf so the display looks generous, but every unit that comes back is paid for by you. Keep a record of what sold at each count and adjust the quantity until almost nothing comes back.

What to agree in writing

A single page signed by both of you prevents most problems:

• Shelf price and who can change it.
• Your share: percentage or fixed amount per unit sold.
• How often you count and when they pay. For example, a count every week and payment by bank transfer within a few days of it.
• What happens to expired and damaged stock. Stock that expires unsold normally comes back to you; stock that breaks or spoils because of how the shop stored it should be paid by the shop. Write it down.
• Display and storage. Refrigeration if needed, out of direct sun, visible to customers.
• Maximum quantity you leave and how it is adjusted.
• How to end the deal and how many days you have to collect what is left.

When it works and what the alternatives are

Consignment works for getting into a shop that does not know you yet, with long-life products, in small quantities you can control. It works less well with fresh products, shops off your usual route or a high shop share.

Once you know your product sells there, propose moving to wholesale: the shop buys from you and the risk of unsold stock moves to them. Lower-risk alternatives include preorders and subscriptions, where you only make what is already paid for, and corporate and bulk orders, where you sell a lot at once with a fixed date and quantity. To see consignment alongside every other channel, read the guide to choosing your sales channels.

Do it with the calculator

Use the food cost calculator to get the variable cost of one unit from your real recipe. With that figure, what the shop pays you and the returns from your last count, run the break-even calculation above before you restock.