Starting a Consignment Business

Profit by converting other peoples' unwanted items into cash on eBay.

by staff writer
- Nov 28, 2008

You've got the bug to sell on eBay, but you've run out of your own stuff to list. So you're rummaging through your mom's attic looking for vintage treasures and other assorted goodies. Even though Mom has squirreled away seemingly every book, toy, furnishing, article of clothing or lunchbox you remember from your childhood, this supply, too, will eventually dry up.

Before you sell off all your mother's cherished memories, maybe it's time to consider selling on consignment—that is, selling other people's stuff for them. For every person who blithely sells anything and everything they can on eBay, there are many others who don't know how, don't have a computer or simply would rather let someone else manage the auction or sale process. For this reason, countless of online merchants have built successful businesses selling secondhand merchandise for a share of the profits.

Your consignment activity can be an addition to your regular eBay business or take on a life of its own—it's up to you. And unless you decide to operate a retail storefront, you don't need a startup business investment.

How does consignment work?

Anything you can sell on eBay, you can sell on consignment. You can define your consignment business as broadly as you wish. If you have a specialty, hobby or knowledge base, you might choose to focus your business in that area.

Whatever you decide to sell, it's a good idea to do the math first to make sure it's an economically viable field for you. Many consignment brokers turn away items worth less than $50, because after subtracting eBay and PayPal fees, there's little profit to share with the seller.

And what you charge for your services is also up to you. You might be satisfied—and quite competitive—taking only 10 percent of the profits (after subtracting all fees, of course). If you have business overhead to cover (i.e., rent for retail space, employees, etc.), 40 percent or more is not unheard of and close to the norm.

eBay's consignment program

To become a Trading Assistant, you need to have established an eBay track record

eBay makes promoting your consignment business easier through its Trading Assistant program. As a TA, you are listed in eBay's consignment referral database, which contains contact details and other specifics about your business to help eBay users locate your services. Additionally, your TA status will be indicated on your My World and feedback profile pages with links to your TA profile.

eBay also provides promotional materials, business card templates and a downloadable logo that you can use when you market your business locally (e.g., through advertising circulars, or public bulletin boards).

While there is no cost to sign up, you do need to have established an eBay track record. Specifically, you must have a good standing on eBay, a minimum of 10 transactions in the prior three months, and at least 100 feedback points with a 98 percent positive rating.

To be listed as a Registered eBay Drop-Off Location (REDOL), you must have a physical retail site that is open to the public at least five days a week, with business hours—that you keep—posted on the storefront. eBay also requires that REDOLs be bonded and carry liability insurance.

The fine print

It's a good idea to thoroughly read the terms of the TA agreement before signing up—and review them periodically for updates. For instance, a recent change to eBay's rules prohibits use of the terms "auction" or "auctioneer" in a TA business name unless the operator is licensed in their state as an auctioneer or auction business.

You should also be aware that certain states require secondhand sellers to obtain a permit or license. Some, such as Nevada, expect consignment brokers to fingerprint and ID every seller—just in case merchandise turns out to be stolen, counterfeit or otherwise unlawful. And by the way, if you find yourself in legal hot water as a result of your consignment activities, you're on your own. By agreeing to the TA terms, you release eBay of any liability.

Try using Auctiva's free consignment tools to help you with the administrative aspects of your consignment business

For every item you agree to sell, it's important to have a written contract—and both parties must sign it to make it legally binding. You can draw up a basic agreement that you can use for every transaction and just fill in the blanks. It's also a good idea to have a contract lawyer look it over before you use it. Minimally the contract should include:

  • The consignor's and consignee's contact information
  • Item identifiers such as name/title/brand, model number, serial number, condition and any flaws or markings
  • Sale/auction venue and listing format
  • Starting price
  • Listing enhancements
  • Consignment terms, including an explanation of fees and what happens if the item doesn't sell

Whether you operate out of your home or have a retail drop-off site, always, always, always take possession of the item you will be selling. This prevents the seller from backing out mid-auction, and also ensures the item actually exists. Don't risk your good eBay reputation. Besides, you will need to photograph the item, research and authenticate it and—ultimately—ship it.

While you're at it, consider charging a small upfront service fee—say $5 or $10—that you refund after the item is sold and the deal is completed. This accomplishes two things: It covers your time and costs in case the item doesn't sell, and it helps limit your dealings to serious sellers.

Try using Auctiva's free consignment tools to help you with the administrative aspects of your consignment business, including creating commission plans, payout reports and tracking of individual consignors.

For the experienced eBay seller, consignment sales can be an easy—and highly profitable—way to expand online business.

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

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