Wholesale, Consignment and Drop Shipping: A Breakdown for Etsy Sellers
I originally wrote this on Bean’s Blog, and I thought many Handmadeology readers might find it a handy resource for navigating the world of wholesale as well. I would love to hear about experiences good or bad you’ve had with wholesale, consignment or drop shipping and any helpful tips you’ve picked up along the way.
When I was first starting out on Etsy I would get a variety of confusing emails asking questions like do you wholesale/consign/drop ship? It’s good to be informed and consider which options are right for your business so you’re prepared to field questions from retailers. Don’t get taken unawares.
Wholesale means selling your products to retailers in bulk for a lower price. Basically, you are introducing a middleman between you and your customers. The benefits of wholesale are many: reliable steady income, a broader audience for your work, and chunks of money that help pay the rent. However, in order to sell your product wholesale you will need to give retailers a competitive and lower price than what you sell products for on Etsy or your website. Selling wholesale means setting retail prices that are roughly 50% higher than what you can afford to sell your product for wholesale. If you decide to sell wholesale, setting opening order minimums and reorder minimums is a great way to structure things so that you are making some money from all your hard work. Depending on how much business you do and what type of retailers you deal with your opening order minimum could be anywhere from $75 to $1200. If you want to attract retailers to purchase from you, creating a line sheet is a great way to put information about your wholesale prices and policies in a neat little package to send out. Also consider your lead time, or how quickly you can ship wholesale orders of various sizes. This may vary depending on the season and how busy you are.
Selling wholesale often means making many of the same item. Make sure you are ready and willing to create lots of multiples before agreeing to wholesale.
Consignment is an arrangement where a shop displays your goods in their store and when they sell the item they take a commission and send you money. You retain the legal ownership of your items, and are often paying to ship them to the store. When selling consignment, research the shop and make sure they are legit. There is a gamble when you send goods out and are not receiving money right away in return. In my experience consignment commission rates vary from 30-50%. It can be a pain to get products back when you consign, so you may want to be cautious and send smaller batches of products until you’ve built a trusting relationship with a consignor.
The first time someone asked me if I drop ship I had to go and look it up because I had zero idea what that meant. Drop shipping is similar to consignment, but your product is posted on a retailer’s website and you ship the product directly to the customer. Commission rates for drop shipping in my experience also range from 30-50%. A few questions to ask up front: Will they want to use your photos to sell your products? Will they rename your product on their site? Will they mention your brand name in the item listing? Additional information to consider when setting a commission rate: What kind of traffic do they have on their site? Do they advertise? Do they have a printed catalog and/or attend trade shows? Will they also purchase some of your products wholesale?
Setting commission rates is hard and it’s difficult to figure out what’s fair. If I could sell everything I make at retail that would be wonderful. However, we all know the risk in retail is that sales will be unreliable when you need money the most. When you sell on Etsy and your own website, the overhead can be as much as 20% just to sell online. Retailers take on that responsibility so that’s a little piece of the pie that earns them their percentage. Plus, if you are doing a good job branding the work you sell wholesale (sewing in tags, hang tags, etc) people will find you and purchase from you directly as well. If a retailer has a great following and will lead to me getting more sales through them and on my own website, then they are earning their 50%.
Finally, consider whether you have the time and resources available to offer your products at less than retail. I had to hire an assistant when I started wholesaling. Retailers will want products from you during peak seasons as well, so make sure you equipped to handle your best case scenario – lots of orders! Selling wholesale can also mean including more specific packaging with your products. I designed hang tags with sizing information to make things easy for retailers carrying our products.
I know that many of you out there are veterans of handmade business and have much more than my two years of experience under your belts. I’d love to hear what you’ve learned and what’s worked for you!
I highly recommend Craft Inc. by Meg Mateo Ilasco for additional reading about wholesale and consignment. The Craft Inc. business planner is wonderful as well and has some good templates for wholesale order forms and policies.