What Is the Difference Between Consignment & Commission?

When selling a piece of artwork or any other product, the question of whether to sell it on a consignment basis or a commission basis often arises. Before you can make that decision, you must understand the differences between the two options and the advantages and disadvantages that accompany them.

Consignment is when a manufacturer or craftsman, called a consignor, gives his product to a store with an agreement that the consignor receives payment once the item is sold. The retailer takes a percentage of the sale and pays the remainder to the consignor. Thus, no sale is made until a customer buys the item from the retailer. Consignment is especially common among art galleries selling items that are more than $250.

Commission is the percentage of a sale that the person who sells a product receives. There are a variety of commission arrangements that may be reached. For example, commission may be received in place of a salary or in addition to a salary. Commission is meant to motivate sellers — the more they sell, the more commission they receive. Commission is especially common within the real estate market.

Consignment may be useful for consignors because their products may be sold through more avenues and sometimes for a higher price. This arrangement is good for retailers because they owe nothing until the product is already sold, which may take months or years. Because of this fact, however, consignment rarely provides a steady stream of income to consignors. In addition, consignment agreements may be risky for consignors, involve complicated agreements and require diligent bookkeeping.

Commission comes with an entirely different set of advantages and disadvantages. Because sellers receive more money when they sell more, they're motivated to sell product. On the other hand, their reliance on commission means that when sales decrease, sellers may move on to other jobs. A consistent salary might not motivate sellers like commission does, but it retains valuable employees when sales decrease.