Pros and Cons of Consignment Selling

eBay consignment selling has become a big business. Why is that, and what possible pitfalls are there?

Pros

The benefits of selling other people's stuff are numerous. They include

It's a big market. As big as eBay is, it could be bigger. Just ask around; lots of people out there would like to sell some of their old junk on eBay, but either don't know how, are afraid of dealing online, or don't have the time. All those people are potential customers for a consignment business.
No upfront costs to buy merchandise. Unlike other business models, you don't have to buy what you end up selling on eBay. There are zero costs for merchandise acquisitionwhich means you don't need a lot of cash to get started.
Big profits for minimal effort. Assuming you charge an average commission of 25% or more on each sale, that's good money for creating an item listing, packing a box, and driving to the post office. If you can limit your business to higher-priced merchandise (say, $100 or more), that's at least $25 or so in your pocket for every successful auction you broker, pretty much free and clear. That's not chump change.
You're providing a real service to people. Here's the part that many consignment sellers really like. You're helping people who otherwise wouldn't know what to do with their old stuff. Not only do you help them move their merchandise, you help them generate some cash that they also wouldn't otherwise have. It's a real service.
You won't get bored. Another thing that many sellers like is the variety of merchandise that comes across the consignment doorstep. There's always something new and interesting to sell, and since you're selling across many categories, you're insulated from potential category downturns.

Sounds like easy money, doesn't it? Well, it isafter you find your clients, anyway. It's a true service business, as opposed to an inventory-based or resale business, which all other eBay businesses are.

Cons

Consignment selling, of course, does have its challenges. They include

There's plenty of competition. Remember that list of drop-off franchises earlier in the chapter? They're all potential competition to your consignment businessas are all the other Trading Assistants in your neighborhood, as well as company-owned chains like AuctionDrop (www.auctiondrop.com). And there's always the chance that even bigger players will get into the market. Circuit City actually tested eBay drop-off services in some of its stores but ultimately decided against it. When something looks like a sure-fire moneymaker, expect lots of folks to jump in.
It's a never-ending search for new clients. Part and parcel with increasing competition is the constant search for new clients. You can't just launch a website and expect potential clients to stumble over it; you'll need to put in a lot of footwork to build your client base.
There's little or no consistency or efficiency. Since you have little control over what your clients will want you to sell, you won't be able to generate any long-term efficiency in selling or shipping. One client might bring you a Hummel figurine, another might bring you a farm tractor. You need to be prepared to sell anything.
There may be conflicts between you, the client, and the buyer. When you're selling someone else's stuff to a buyer on eBay, you now have a three-way transactionyou, your client, and the buyer. If the buyer has a complaint, it's easy to see how a lot of finger-pointing could result. You'll need to spell out who's responsible for what ahead of time, but even the best of contracts break down when one of the parties is unhappy. You'll have to figure out a way to deal with such disputes.

You may need to open a retail storefront. With increased competition, potential clients will tend to gravitate toward those resellers that offer the best serviceswhich, for all practical purposes, means the convenience of dropping off their merchandise for resale. You may be able to operate out of your house for a while, but expect pressure to build for opening a drop-off location.

You'll need a lot of storage space. The more business you do, the more client merchandise you'll need to store. Even if it's just storing something for a week or two, it's still space. Where will it all go?

In other words, as good as consignment selling sounds, there's a lot of work involvedand a lot of things that can go wrong. Before you dive in, make sure you're prepared for all that's involved in running what is a very real business.

Pros and Cons of Consignment Selling