Why Commission Trading is a Smart and Low-Risk Business Idea
There has been an increase in interest in commission trading. In times of crisis, when the cost of missteps in business strategy can multiply many times over, this concept can pay off. This “crisis” calls for a thrift shop. Thrift stores are thriving and growing their revenue at a time when demand for goods is falling, brand departments are losing money, and high-end boutiques are closing. The low price of the goods attracts those who seek to save money. Therefore, used goods are in high demand.
Market statistics show that over the past few years, the interest of buyers in consignment stores has been actively growing. This is confirmed by the increase in the number of retail outlets in major Russian cities. Commission trading is attractive because it does not require the purchase of goods and is almost devoid of risks. Opening such a store is within the power of any novice entrepreneur, this does not require special skills and large financial investments. Having studied the basic nuances of a business, you can open your own business, which will bring a stable and high income.
The New Wave of Commission Trading: Why Thrift Stores Are Making a Comeback in the Modern Market
Despite the outward simplicity, commission trading has a number of nuances and pitfalls. Opening a thrift store is easy. Making it a business that makes money instead of just a place to store things that don’t need to be there is much harder. Different people have different ideas about how profitable the commission is. Some people say that this format is no longer useful at all. Many people say that sites like Avito.ru are great places to buy and sell used things. Also, experts say that demand still exceeds supply in this area of trade, and that will only get stronger in the near future.
It is important to understand that the commission shop today and the commission shop in the Soviet years are completely different things. Currently, stores selling used goods are experiencing a second wave. The needs of today’s consignment shop buyers are different than they were a few decades ago. People are willing to buy branded items or iPhones at half price. So the idea of commissions as a garbage warehouse is wrong. Let’s find out what second-hand goods are in demand, whether it is profitable to open a thrift store, and if so, what needs to be done for this.
How to choose an assortment
The main task of such stores is to form an assortment that will be in demand. There are a lot of people who want to hand over their things, but how to understand and navigate all this is a difficult question. In order not to get confused in all the variety of goods, modern commission shops choose a narrow specialization. The success of such a store is determined by whether the entrepreneur correctly identified:
- potential buyers;
- the volume and quality of things accepted into the store;
- store promotion methods.
How to define a specialization
It is clear that you need to choose a category of goods that is more in demand. But how to evaluate this demand? The surest way is to study which store formats are currently profitable.
- “Branded”, where clothes, shoes and various accessories are sold. There are a lot of such stores in large cities and they are a success. There are things of fashionable and famous brands. Thrift stores even have social media accounts where product photos are displayed. The visitors are predominantly women, but of completely different social strata: from students to office ladies;
- Childen’s goods. The demand for these products is understandable: children grow up quickly, and some people do not see the point in spending big money on things that will be used for a short time. In such commission shops you can find imported strollers and cribs, various expensive gadgets. Initially expensive things last several years, so you can find goods in excellent condition, but much cheaper;
- Technique. Stores selling used electronics can be found in almost every city. In such commission shops you can find any equipment – from mobile phones to washing machines. These are everyday goods that break often and unexpectedly. Not everyone can immediately purchase new equipment. In this case, it is beneficial for people to turn to a thrift store. Main audience: students, youth. In this case, it is important that the selection of goods is carried out by a seller who understands the technique. Maximize Your Earnings
What Sells in Thrift Stores Today? Finding Your Niche in the Resale Market
- Furniture, working tools. In the past, most of the things that consignment shops sold were household items. Different types of people can use this group of goods, such as people who are moving, renting an apartment or office, students, and so on. A problem exists, though: the furniture is pretty big, and it can be hard to store at times. Because of this, companies that buy and sell furniture often offer extra services like delivery, loading, and repair.
- Jewelry or antique thrift store. Not everyone will be able to evaluate the assortment in such a store, so the circle of potential buyers is limited. In such commission shops you can find antique furniture, rare books, vintage jewelry and more.
- The Thousand Little Things format is a combination of several directions at once. The store sells goods of various categories. Many entrepreneurs recognize that this is the most efficient business format. However, it is important that the entrepreneur carefully selects the assortment – and not everyone can handle this.
There are many options, choose the one that would be interesting for you to do. Also consider your competitors. Several commissions in the same city can coexist peacefully, especially if they represent different formats. Choose the option that will allow you to create a unique offer in the market.
What is the Scheme of Work of Commission Stores
The scheme of work of commission shops is simple and transparent. The goal of the entrepreneur is to sell someone else’s goods and receive a certain percentage for this. In this case, the goods do not become the property of the commission, but remain owned by the first owner. The owner sets the price for the goods himself.
Usually the store puts the product on display for a certain period, which is 1-3 months. If during this time the product remains on the shelf, it is transferred to the owner, but then a storage fee is charged – 3-5% of the value of the product. If the goods are sold, the owner fills out a special form of the contract, which indicates the transfer of ownership of the buyer to this product.
The task of the entrepreneur is to mediate the transaction and ensure that both parties honor their obligations. In order to avoid unforeseen situations, lawyers advise to record on paper with signatures each purchase and sale transaction. Forms should be prepared in advance.
In the second-hand goods trade, the following commission charging scheme is common: the more expensive the item, the lower the percentage of the store. For example, when selling a computer for 30 thousand rubles, your share from the sale will be 10% (3 thousand rubles), and when selling shoes for 1 thousand rubles – up to 30% (330 rubles). Thus, you have the task of selling different things – both expensive and cheap. Keep in mind that cheap items sell faster.
The store owner sets the interest rate himself. But experienced entrepreneurs advise using the progressive commission system, as it has proven itself best in the field of commission trading.
Commission Trading Principles and Regulatory Framework
From a legal point of view, the work of a thrift store is based on the conclusion of an agreement between two parties: the committent, who provides the goods, and the commission agent, who undertakes to sell it for a certain fee (commission). The procedure for concluding such agreements is defined in Chapter 51 of the Tax Code of the Russian Federation.
The contract is drawn up in 2 copies for each of the parties and is certified by a seal. There is no strictly regulated form of the contract, but it should reflect: details of the commission agent; date and number of the contract; full description of the product, its characteristics and price; conditions for acceptance and the period of its implementation; the amount of the commission in case of sale of the goods or payment for storage if the goods are not sold.
Participants can be both individuals and legal entities. For example, a store may accept products from a wholesaler or other sales organization. Relations between a commission agent and private individuals are regulated by a special document: “Rules for commission trade in non-food products” (approved by Decree No. 569, 06/06/1998).
Focus on The key Principles of Commission Trading:
- It is possible to accept things from individuals only upon presentation of a passport;
- The customer who handed over the goods is its owner until the moment of sale. At any time, he can terminate the contract and return the goods to himself;
- The amount of the commission is usually set as a percentage of the value of the item, but there are other ways: for example, a fixed amount of remuneration. This is discussed by agreement of the parties;
- The store is responsible for the safety of things before the committent, but is not obliged to insure the property that is transferred for sale;
- The commission agent may refuse to execute the contract in only one case: if the term of the sale is not indicated in it. The customer must be given 30 days notice to terminate the contract.
- It is not allowed to accept goods that are not subject to exchange and return, as well as prohibited or restricted in circulation. Such goods include the following categories: underwear, medicines and medical devices, cosmetics and perfumes, etc.
- The item accepted for commission must be exhibited no later than the next day. A price tag is attached to it indicating the degree of wear. If the warranty period for the goods has not ended, the buyer must transfer all the documents. In the event of a sale, the money is paid to the committent not later than the 3rd day after the sale.
Now that we have managed to understand the specifics of the activities of the commission, it’s time to decide what you need to open.
Registering a Thrift Store
Legalizing the activities of a thrift store is quite simple. The registration procedure is standard and does not require any special permissions. The algorithm for registering a business is as follows:
- Register an individual entrepreneur or LLC in the tax office. Please note that if you plan to cooperate with legal entities, you will need to register an LLC. As OKVED, indicate the code: 47.79 – Retail trade in used goods in stores;
- Choose a taxation system. It is recommended to apply the simplified tax system at a rate of 6% of income or 15% “income minus expenses”;
- Register with the PF if you plan to hire employees;
- Obtain a permit for trading activities in the local administration;
- Obtain permission from the fire inspectorate and SES;
- Sign a lease agreement.
Choice of Consignment Store Premises
First of all, decide in which area of the city it is better to locate a thrift store. It would be more profitable to place it in a densely populated area, remote from the center. First, there you will meet more of your potential buyers. And secondly, the cost of renting premises in such areas will be lower.
Consider also the advantageous neighborhood. You can stay near the clinic, public transport, grocery store.
The requirements for the premises themselves are minimal: an area of 15-30 square meters. m. and more, depending on the specifics of the goods. If you plan to sell furniture, you will need an area of more than 200 square meters. m. Keep in mind that there are almost no warehouses in commission stores – all goods are on display in the trading floor. Still, a little help won’t hurt. The cost of renting such a room will be about 15 thousand rubles.
Purchase of Equipment
A thrift store requires a minimum of equipment:
Commissioning requires minimal equipment:
- Showcase and counters (depending on the type of product. For example, clothes need hangers and fitting rooms with mirrors);
- Furniture for the seller: table, chair, counter;
- Laptop and MFP;
- Cash machine.
Approximately 60 thousand rubles will have to be spent on equipment.
Consignment Store Costs
The initial investment will be minimal. At the start, you will have to spend on:
- Equipment – 60 thousand rubles
- Rent of retail space – 15 thousand rubles
- Advertising – both free promotion tools (for example, ads in a newspaper or the Internet) and paid ones can be used here – advertising in elevators will be the most effective. The minimum budget is 5 thousand rubles;
- Drawing up the necessary forms, contracts and other documents (the minimum price is 1000 rubles for each) – 5 thousand rubles;
- The cost of registering a business is 5 thousand rubles.
- Unforeseen expenses – 10 thousand rubles
Total initial costs will amount to 100 thousand rubles.
In addition to the initial investment, you need to plan monthly expenses:
- Premises rental – 15 thousand rubles;
- Salary to the seller – 17 thousand rubles;
- Consumables (paper for printing contracts, check paper, stationery, etc.) – 3 thousand rubles;
- Taxes – 5 thousand rubles.
Total monthly expenses will amount to 40 thousand rubles.
How Much can you Earn From Commission Trading
Experts believe that in the coming years the number of consignment stores will only grow. Used goods are not afraid of the crisis, because at this time the demand for them is only increasing. The advantage of commission trading is the absence of risks: you do not need to spend money on bulk purchases of goods, which, if unsuccessful, can become unprofitable ballast.
To calculate the expected profit, you need to know the approximate amount of the daily check. According to the most modest indicators, it is 15 thousand rubles. In this case, you will receive a commission of 20% of the proceeds – i.e. 3 thousand rubles. Then the monthly revenue will be 90 thousand rubles. The entrepreneur will have a net profit of 50 thousand rubles.
With such indicators, the initial investment will pay off in 2-4 months. This is a good indicator that indicates the profitability of the business. So with minimal investment, you can open a simple, but quite profitable business.
Finally, Here are Some Tips for Those Who Decide to Open their Own Thrift Store:
- From the very first day of operation of the commission store, there should be goods on the shelves. Therefore, in advance, you should give announcements about the acceptance of second-hand items for commission. If you can’t pick up an assortment, you can purchase a minimum set of goods at various stocks or the Avito.ru website;
- Rent a room that you can fully use. A half-empty hall is not only a waste of money, but also psychologically uncomfortable for visitors;
- Do not sell overpriced goods if you know that hardly anyone will buy them. Usually used goods cannot be worth more than 50% of their original price;
- Leaflets advertising your commission can be distributed through mailboxes. Adding a discount coupon to your flyer will increase the likelihood of people coming to the store.
The practice of running a commission business shows that the success of this business is largely determined by the personal qualities and skills of the entrepreneur. To do this, you need to be well versed in a particular category of goods, the psychology of your customers. In general, the business is quite simple. It is enough to understand the specifics of commission trading in order to earn money on it. Anyone can open such a business. The main advantages of a thrift store as a business are: minimal investment, simple operation, minimal risk. If the entrepreneur does not sell the goods, he does not risk his own funds, but simply returns it to the consignor.