A consignment store sells goods for consignors – people who pay a fee to a store owner to sell their goods. Consignment stores may have niche items or may contain everything from kitchenware to clothing. Though starting a consignment store may sound easy, it takes a great deal of knowledge and money to start such a business. Creating a business plan before diving into starting a consignment shop will help ensure that you stick to guidelines and budgets in order to minimize the riskiness of your new business venture. It is important to know where you will be getting your inventory from. Unlike a regular retail store, you will not be able to get your inventory from popular retail suppliers. Your inventory will be coming from individuals who are trying to sell your products. Before agreeing to stock a certain item, you must be sure that you are likely to be able to sell the item for a large enough profit. Being able to negotiate favorable terms with consignors is an essential skill to have.
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Learn how to start your own Consignment Store and whether it is the right fit for you.
Start a consignment store by following these 10 steps:
- Plan your Consignment Store
- Form your Consignment Store into a Legal Entity
- Register your Consignment Store for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Consignment Store
- Get the Necessary Permits & Licenses for your Consignment Store
- Get Consignment Store Insurance
- Define your Consignment Store Brand
- Create your Consignment Store Website
- Set up your Business Phone System
There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your consignment store. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
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STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a consignment store?
Some of the costs involved in opening consignment stores are yearly, some may be monthly, and some may be weekly or even daily. Costs may include:
- Permits and licenses for local, county and state, including certificate of occupancy and a sales tax certificate. If you sell soda and water at your store, even via a soda machine, you may have to have a permit for that.
- The cost of the building, whether you purchase it or rent it.
- The cost of revamping the interior and/or exterior of the building, if applicable.
- Counters, shelving and other display units.
- Marketing to buyers and consignors.
- Office supplies.
- Point of sale system.
- Security system.
What are the ongoing expenses for a consignment store?
Ongoing expenses may include utilities, rent or mortgage, permits and licenses, payroll if you have employees, office supplies, and taxes. Taxes may include state, local, federal and sales tax. Of course, you need to pay the consignor his or her share of the item that sold.
Who is the target market?
A consignment store has two types of clients: consignors and buyers. Consignors are usually those who want to sell items they no longer need. Buyers are those looking for a deal on an item that might be out of their reach if they were to buy it new.
How does a consignment store make money?
A consignment store makes money by selling consignor's goods. The store may charge an upfront fee to show items, take a fixed percentage of each sale, or it may do both.
How much can you charge customers?
How much you charge depends on your product. In most cases, the items you have are used, so you will only be able to get so much for those items. Don't forget the amount you have to pay the consignor. That price needs to be agreed upon prior to you accepting the item. Consignment shops take between 25 percent to 60 percent of what the item sells for. Thus, if a person consigns a cocktail dress for $500, the consignment shop owner would get up to 60 percent of that cost, depending on what your agreement with the consignor is.
How much profit can a consignment store make?
Consignment stores generally charge from 25 percent to 60 percent of the sales price of a sold item.
How can you make your business more profitable?
Make your business more profitable by:
- Helping your consignors properly price their items. For example, you wouldn't take in a bicycle that is worth $20 and try to sell it for $50, or it will just sit in the store.
- Choose a fee that most people in your neighborhood will pay. Those in higher scale neighborhoods might be willing to pay up to 60 percent for a consignment fee, while other neighborhoods may pass by your store if the consignment fee is over 30 percent.
- Don't skimp on advertising. Advertise to consignors and buyers alike.
By keeping prices within reason and advertising to obtain new inventory and new buyers, you should be able to make a highly profitable consignment store.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Consignment Store Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your consignment store is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
- LLC Taxes
- Sole Proprietorship vs LLC
- LLC vs Corporation
- LLC vs S Corp
- How to Start an S Corp
- S Corp vs C Corp
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
Besides being a requirement when applying for business loans, opening a business bank account:
- Separates your personal assets from your company's assets, which is necessary for personal asset protection.
- Makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
Open net 30 accounts
Net 30 accounts are used to establish and build business credit as well as increase business cash flow. With a net 30 account, businesses buy goods and repay the full balance within a 30-day term.
NetMany net 30 credit vendors report to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our best net 30 vendors, guide and start building business credit.
Get a business credit card
Getting a business credit card helps you:
- Separate personal and business expenses by putting your business' expenses all in one place.
- Build your company's credit history, which can be useful to raise money later on.
Recommended: Apply for an easy approval business credit card from Divvy and build your business credit quickly.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a consignment store. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A consignment store is usually run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease office space:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a consignment store.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build office space:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for you business’ location to ensure your consignment store will be in compliance and able to obtain a CO.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market a consignment store
Promoting your consignment store business is second only to customer service. Use social media, send out fliers, and advertise on television if possible. When you do open, hold a grand opening to entice customers and consignors to come in and see your store. Word of mouth travels fast, whether it's good or bad, so keep that in mind while you are working with customers and consignors.
How to keep customers coming back
As part of your business plan, you should have researched the type of product that would do well, and whether you would set up as a niche boutique or start out with something less difficult to market. A niche boutique for a consignment shop can specialize things like selling sports equipment, dance equipment, hardware, etc. Attract customers by designing window scenes, offering discounts, or even holding a contest to win a product. Retain customers by treating them right. Regardless of what you chose and the caliber of customer, treat all of them like they are the richest and nicest person in the world.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2022 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
Start a Consignment Store in your State
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
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Is this Business Right For You?
A consignment store owner needs to know his or her limitations and must also do well with dealing with people. It is essential that you are able to negotiate business terms, as you will be working with consignors in addition to your customers. If you are not able to negotiate terms with consignors that will allow you to make a large profit off of selling their items, then you will not be able to cover your operating costs or make a profit.
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Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a consignment store?
The owner of a consignment store has several duties to do, some every day and some a few times a week, including:
- Cleaning the store
- Straightening out inventory
- Marketing the store via mail, e-mail, social media and other outlets
- Locating new consignors
- Customer service
- Paying bills
- Ordering office supplies, bags and other inventory needed to conduct business
- Closing out sales
- Notifying current consignors of sales and the need for new product
- Paying consignors
What are some skills and experiences that will help you build a successful consignment store?
You'll need a myriad of skills to build a successful business, or you'll need to have the means to hire and pay people who have those skills. Consignment store business skills include:
- Customer service
- Sales and marketing
- Inventory management
- Money management
- Employee management
What is the growth potential for a consignment store?
In the ideal location, a consignment store could show extensive growth as long as the city has many people who want to put their items on consignment and you have buyers that are willing to purchase those items. In certain areas, clothing may sell better than furniture, while in other areas, you may do well with non-clothing items, such as furniture and other home and garden items.
Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a consignment store?
The most important part of starting any business is to create a business plan and to research the neighborhood. To jump start a consignment store business, you should also:
- Make sure you can fill your shelves before you open the doors.
- Ensure that you have enough inventory to rotate through as you sell more, and that you have consignors lined up to sell their products.
- Make sure your inventory is what those in your neighborhood are looking for.
- Create an attractive store.
- Keep smaller items near the cash register to encourage impulse purchases.
- Partner with local businesses to drive sales to them while they drive sales to you.
How and when to build a team
When customer service starts pulling you away from completing administrative tasks, such as paying consignors, taking inventory, pricing goods, and accounting; or when customers are consistently waiting for you to finish with another customer, it's time to get some help in the store. If a customer has to wait, he or she may not come back to your store.
Read our consignment store hiring guide to learn about the different roles a consignment store typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.
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