jewelry | true materials costs | design and labor costs

This week's Featured Item!

Starting and running a jewelry business.
(Part 7 in a series)

Before I go any further, I just want to thank all of the people who sent me Emails showing your appreciation of this series, and the information we are passing on to you.

I have received many questions about pricing when you make wholesale sales to resellers. This actually fits right in with my next segment.

WHOLESALE PRICING.
First, and foremost, you must compute (using information gleaned from the previous parts of this series) your lowest reasonable selling price. That wholesale price must include: 1) All of your “true materials costs”; 2) Your design and labor costs; 3) A portion of your general business expenses; 4) Any business expenses, specific to this sale; and 5) A REASONABLE PROFIT!

In figuring a mark up or a discount you use two different processes, and the final prices are don’t match.
MARK UP: This is used when you know the cost (or materials costs) of your product and want to multiply it by an amount that will cover all of the business expenses necessary to the sale of this product, plus a reasonable profit, and a “Fudge Factor” that will allow you to give a discount, if necessary, to make the sale. For example: your cost is $100 and your markup is 2.5 %, so $100 X 2.5% = $250.

MARK DOWN or DISCOUNT: This is used when you need to discount a price, and still make a profit, to: 1) Sell wholesale to a reseller; 2) Make a sale; or discount prices where a profit might not be necessary: 1) Clear out old merchandise to make room for new merchandise; 2) To liquidate stock for invest able or needed cash. For example: your retail price is $300 and you are discounting by 50%, so $300X.50%= $150.

UNEQUAL FIGURES: As I said before, when figuring prices in the Mark Up method and in the Mark Down method, the numbers don’t match. Here are a few examples.
MARK UP                                           MARK DOWN
$100 X 50% mark up = $150               $150 X 50% mark down = $ 75
$100 X 100% mark up = $200             $200 X 100% mark down = $ 0

$100 X 50% mark up = $150               $150 X 33.3% mark down = $ 100
$100 X 100% mark up = $200            $200 X 50% mark down = $ 100

So, as you can see, if you give a discount equal to your mark up, you will lose money! It is very important that you understand this difference and the mathematic principals that are involved.

DISCOUNT SCHEDULE: Many wholesalers use a Discount Schedule. Using this schedule, the wholesaler gives greater discounts as your purchases increase. Here are discount schedules from two of my old suppliers:
Supplier #1: (discount based on each order, only. Does not carry over to future orders)
Minimum purchase with a wholesale discount is $ 200. = 0% discount.
Purchases over $ 200 receive a 30% discount. = 30% discount.
Purchases over $ 500 receive a 30% discount, + a 10% discount. = 37% discount.
Purchases over $ 1,000 receive a 30% discount, + 10%, + 10%. = 43.3% discount
Purchases over $ 3,000 receive a 30% discount, + 10%, + 10%, + 10%. = 49% discount
As you can see, 30%+10%+10%+10% doesn’t equal a 60% discount. In a discount schedule each discount is taken before you take the next discount. Based on 100% (retail price), deduct 30% and you get 70%. Then 70% - 10% = 63%. Then 63% - 10% = 56.7%. Then 56.7% - 10% = 51%.
Supplier #2: (discount based on each order, only. Does not carry over to future orders)
Purchase 1 to 4 identical items = retail price.
Purchase 5 to 24 identical items = 21.4% discount from the retail price.
Purchase 25 or more identical items = 36% discount from the retail price.

Here at HouseofGems.com, we also have a discount schedule. Unlike the previous 2 suppliers, our “Frequent Buyer program” is based on your total cumulative purchases. Each time your total accumulated purchases reach a new plateau your discount grows and it is applied to that purchase, and all future purchases.
Your total accumulated purchases of under $100 = 0% discount
Your total accumulated purchases of $100 to $499 = 5% discount
Your total accumulated purchases of $500 to $999 = 10% discount
Your total accumulated purchases of $1000 to $1999 = 15% discount
Your total accumulated purchases of $2000 or more = 20% discount

These are examples of discount schedules used by two of my previous suppliers and ours, here at HouseofGems.com. You can develop schedules to meet your own needs. These schedules can build sales and weed out phonies. These phonies can be people (with a “resale number”) who claim they are purchasing one or two pieces of your jewelry to sell in their store and that they will make many more purchases in the future. In reality, they have no intention of reselling the jewelry or make future purchases. They just want to buy your jewelry at a reduced price, and not pay you what you are worth.

It is important to understand, your “Retail Price” might be very different from the “Retail Price” your wholesale client puts on your creation. I find that most resellers mark up jewelry 2X, 2.5X, and 3X the prices they paid (aka: keystone, 2.5 keystone, 3 keystone.).

Another consideration necessary to setting your wholesale prices is how soon you will be paid. If you are paid in advance, or on delivery, you can be generous. But if you have to wait 30, 60, or 90 days (or longer) to be paid, your costs go up and you can’t be as generous. These people are using you as their “Free Loan” bank, and, normally, you don’t have a bank’s financial assets.

You invested your money to make the jewelry you sold, but now you have to wait for your money. When you have to wait for your money you: 1) can’t pay your bills; 2) have to pay interest on money you owe; 3) can’t buy new supplies to make more jewelry; 4) can’t invest your money; 5) can’t enjoy your life.

Generally, the wholesale discount on jewelry left on consignment is lower than the discount given to a regular wholesale customer. Not only is the consignment reseller using you as their bank, but, since they have no financial involvement in your jewelry, it is to their advantage to sell the items they paid for, before they sell your consigned jewelry. Personally, I have had to sue to collect money owed me on consigned items that were sold, and to get back all of the unsold items. It is very important that you have a good, signed contract with anyone you consign to. You can find examples of consignment contracts in books on craft sales (I will list some in part 8)..
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Next week, I will list useful books & magazines; discuss frustration & burnout with under pricing; etc. Plus, I will answer questions from part 1 of this series, and e-mails I have received.

Note: The purpose of this series is not for me to tell you exactly how much money you must charge. Instead, it is meant to be a guide to help you understand some of the basics of business, how to understand and calculate your true component costs, and determine the value and selling price of your jewelry.

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