Back to Ganoksin | FAQ | Contact

Dealing with the increase in metal prices


#1

hello everyone out there!

I am struggling to figure out how to deal with the extraordinary
increase in metal prices with my existing inventory of finished
goods, what the market will bear etc, understanding that what goes up
in this business rarely comes down.I sell out of my house, and by
doing private house shows, so I don’t have to worry about gallery or
store costs (done that!). Having just purchased some gold this past
week to make a special order ring, I am clearly into a new category
for pricing, which will look far different from my existing pieces,
and it has me in a quandry. I appreciate any ideas from those of you
in the same position.

Marion Stegner
(www.marionstegner.com)


#2

In the various places I’ve worked over the years, I’ve seen 2 basic
ways of dealing with rising metal prices when it concerns existing
stock. Some will adjust prices on the fly to reflect the days
market, as do many of our suppliers (Stuller included). Other will
use prices based on the actual costs when the piece was produced and
use that as a sales tool as well. The general line is to tell the
potential buyer that you can’t replace the piece for that price, so
grab it now. If you have to reproduce it, the price will be higher.
That is the method I usually prefer. The place I have been caught
recently is being caught off guard by how quickly the prices were
rising and not quoting a high enough price to a wholesale customer,
barely breaking even on the transaction.

One of the tools we have been using in our store lately is Stuller’s
online ordering system. With it we can check cost on a real time
basis before we quote prices on special orders. No need to commit
the order until the customer is ready. Of course, most suppliers can
give you quotes over the phone, often on their toll free number, but
we like the convenience of the web site. Just warn reluctant
customers that prices are still on the rise, and that the prices will
be adjusted to reflect the prices current when the materials are
ordered.

Jim
http://www.forrest-design.com


#3

I’d suggest raising the prices on your existing inventory too. If
you don’t, then you risk selling those items for less than it will
cost to replace them with new merchandise. The idea is to sell them
not only to generate a profit margin based on their own costs to
make, but also taking into account what it will cost to make their
replacements. And it wouldn’t do to be selling a ring you made a
while ago, for less than it’s current scrap value if the prices of
the materials have risen enough to overtake your original retail
price…

the exceptions to this rule you may have to consider is for those
cases where raising the prices to match current replacement costs
might result in your simply not selling the things at all. In that
case, find some middle ground, with the understanding that you
probably won’t be replaceing these items with new similar ones, as
they too would not sell at current pricing levels. If this is the
case with too much of your inventory, then you’ll need to alter
either the way you market your work, in order to find a clientelle
more willing to pay the current prices, or you’ll need to alter your
designs to fit the current market climate, making things with less
metal so you can still sell them for a profit. it may take a
combination of both of these to fully adapt.

This question, by the way, is not at all unique to your own
situation of selling from your home workshop. It’s the same situation
every retailer is also facing, and always has faced, when our costs,
be they metals cost, gems cost, rent, labor, or health insurance
costs, change the costs of doing business.

You might take a clue from the metals suppliers themselves, who’s
prices fluctuate according to the daily market. So do the prices at
places like Stuller, who sell gold items, but they may not adjust the
price per item on all items, quite as frequently are with the same
sensitivity to every last penny’s change in a metal price. And
retailers can’t be retagging all their inventory every day. But many
will adjust their pricing to match the market if the market shifts far
enough.

HTH
Peter


#4

All - Does the high metal prices have any implications on your
advertising strategies? do you find yourself increasing or decreasing
your advertising budget?

Mark Hunza
Prague


#5

If you’re selling your old pieces at old metal prices you’re just
screwing yourself. You need to mark up your old stuff as if the metal
was bought at current prices because that is what you are going to
have to pay when you replace the stuff you sell. Then your new stuff
will look right as well.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC
1780 Massachusetts Ave.
Cambridge, MA 02140
@Daniel_R_Spirer
www.spirerjewelers.com


#6
If you're selling your old pieces at old metal prices you're just
screwing yourself. You need to mark up your old stuff as if the
metal was bought at current prices because that is what you are
going to have to pay when you replace the stuff you sell. Then
your new stuff will look right as well. 

I would humbly suggest that you check with your accountant as to how
to do the above. To restate the value of the cost of goods sold at a
higher price likely violates what we in Canada call GAAP or
Generally Accepted Accounting Principles. To do so would understate
your revenue from sales, something that the tax (wo)man does not
take hindly too.

my $0.02 Canadian


#7

Hello Marion;

I am struggling to figure out how to deal with the extraordinary
increase in metal prices with my existing inventory 

I just submitted an article on this issue to Jewelry in Fashion
Trends magazine. I’ll upload it to Ganoksin’s FTP directory, in case
any of you are interested and don’t get the mag.

David L. Huffman


#8

FWIW I agree with Peter. Yes, you bought the silver/gold/whatever at
a given cost which was below what it is now. But you have to replace
your stock, and the only way to replace it is to charge what it’s
now worth.

You may see a drop off in sales as a result, but this will happen
regardless as soon as you have to raise your prices to match your
supply costs. Otherwise you end up working at a discount, which
isn’t fair to you.

It is probably inevitable that there will be at least a minor drop
in sales due to the increase in precious metals prices, so you’ll
have to be creative in marketing to see how to get around that. If
you’re in a rarified-enough market you probably are immune to
economics… but since most of us aren’t, we’ll have to figure out a
way to maintain our living in spite of these changes.

-Allan


#9

Daniel (or anyone)…are you required to put any notice out for the
customers that you are basing your jewelry pricing on current market
prices for materials, therefore the jewelry prices may go up at any
time?

Thanks
Kim Starbard


#10

I am also concerned with price increase/what market will bear issues
and posted something similar about a month ago–under the heading
"Metals --the price we pay". I had some responses mostly from people
who work i n gold, which mostly talked about just charging by weight
and how I shou ld look at my price structure…

However–I work in silver and am in the Gallery/art jewelery market,
whi ch poses some different questions than the fine jewelery
market…(which I think I voiced in one of my postings) I am just
trying to remember that wealthy people (who buy designer metal work)
rarely sweat a price tag for things that they want to buy…it’s j
ust a different mindset…to the contrary, often they find more
value in things that cost more and they can brag about to their
friends. OH gosh how cynical can I be?? So I have implemented a 15%
increase in prices a cross the board for silver and have explained to
my galleries why it was necessary…It was high time for new prices
anyhow.

I hope you can find some answers in your replies- and I will be
watching this thread for pearls of wisdom…meanwhile…back to the
studio, befo re it hits 100degrees here!

Ciao- happy smithing!- Maureen Brusa Zappellini
www.bzapdesigns.com


#11

David,

I may not have said this clearly enough. I wasn’t saying you should
restate the cost of goods, but that you should refigure your retail
price to reflect a current selling price based on what it would cost
you at today’s higher prices. This only enhances what the revenuers
take out of your pocket (since your profit on the stuff already in
stock will be higher) so they could only be happy about it.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC
1780 Massachusetts Ave.
Cambridge, MA 02140
@Daniel_R_Spirer
www.spirerjewelers.com


#12

To finish my thoughts on my last posting

I wrote" I am just trying to remember that wealthy people (who buy
designer metalwork) rarely sweat a price tag for things that they
want to buy…it’s just a different mindset…to the contrary, often
they find morevalue in things that cost more and they can brag about
to their friends. OH gosh how cynical can I be?? So I have
implemented a 15% increase in prices across the board for silver and
have explained to my galleries why it was necessary…It was high
time for new prices anyhow.

I’ve been mulling this over today and have another outlook on this
$$ is sue…When the market is up, it means that someone is making
money somewhere…the wealthy usually get more so during these
periods (anyone remember yuppies?? yikes)This could actually be a
really positive thing for all of us- as we are shocked into
re-evaluating our price structures and get creative about our sales…
'nuff said-

Ciao from Maureen BZ (who is less cynical now after having a fun day in
the studio)
www.bzapdesigns.com


#13

Kim,

Daniel (or anyone)....are you required to put any notice out for
the customers that you are basing your jewelry pricing on current
market prices for materials, therefore the jewelry prices may go up
at any time? 

You can change your prices any time you want, regardless of market
prices of materials. I know of no requirements to post a notice.
When quoting a price for custom work I always tell the client that
the price is based on the current metal market price and that the
final price will be determined at the time of fabrication or casting,
etc. This is especially important when the cost of materials is
changing so rapidly. Gold went up $27 in the past week. The client
makes the ultimate decision about whether to buy or not.

Joel Schwalb
@Joel_Schwalb
www.schwalbstudio.com


#14
I just submitted an article on this issue to Jewelry in Fashion
Trends magazine. I'll upload it to Ganoksin's FTP directory, in
case any of you are interested and don't get the mag. 

Please do upload your article David L. Huffman. Then give us the
link on Orchid; this will be very much appreciated.

Judy in Kansas


#15

Hi:

To restate the value of the cost of goods sold at a higher price
likely violates what we in Canada call GAAP or Generally Accepted
Accounting Principles. To do so would understate your revenue from
sales, 

I believe the first statement is referring to marking up the retail
price of what’s already on the floor.To violate GAAP would be to go
back to the cost of your material (the price you paid when you bought
the gold/silver) and remark that to reflect current cost. It’s
actually not against GAAP, so to speak, it’s that you have to file a
form (in the US anyway) to request "a change in accounting principle"
in this case going to from what is called LIFO or FIFO to Lower of
Cost or Market. This change in accounting principle would normally be
requested if you had purchased a significant amount of raw material
at very high prices…then the market price fell. Since you had paid
very high prices and are now carrying inventory at a cost that is a
lot higher than the current market value, you would want to employ
Lower of Cost or Market to declare your loss and lower taxable
income. Complicated stuff and the need for a CPA is stressed
here…what to say to the CPA at tax time is “I paid a lot for my
gold at the beginning of the year and I still have a lot of it in
stock, is there anything that can be done?”

A link:
www.irs.gov/businesses/small/industries/article/0,,id=100355,00.html

However, remarking your current retail prices is actually what I had
a question on. For those who have retail stores, does a store owner
have to notify the customers (put a sign up) that prices of jewelry
are based on current prices (cost) of materials and that the prices
on the jewelry can go up (or down…just kidding) based on the
current market price of gold/silver etc?

I hope I made sense and didn’t put everybody to sleep

Kim Starbard


#16

Hi

I am not aware of any such requirement. I imagine that would vary by
location. A state or city could easily pass such a regulation.

I think it’s prudent to find a positive way to present the relevant
facts about pricing. Gold, stones and your work.


#17

Pricing for a changing metals market
By David L. Huffman

As you may have noticed (I’d be astonished if you hadn’t), prices
for gold and silver, platinum too, are on the rise.

First, a word of advice: Don’t panic, it doesn’t mean we are going
to have to price ourselves out of our markets. Now if only we can
convince the customers, who are also privey to the knowledge of
rising gold and silver prices, that jewelry is still a good buy.

Relative to the effective purchasing power of U.S. currency,
precious metals are actually a fairly stable commodity, historically
speaking. But the value of the dollar, typically relative to the
price of oil since the U.S. left the gold standard, is in flux, as
oil is increasingly traded in other currencies. What that means is
that we can expect the price of gold and silver to continue to rise
and stay high. What that also means is that, as a jewelry producer
using these metals, your pricing structure must take into account
the fact that you will be replacing inventory at increasing cost. Is
there a formula you can use for this? Yes, but market forces will
affect your decision. You may need to accept smaller margins to stay
within price points that are competitive. However, your competition
will undoubtedly be raising their prices too, so, whereas it is
generally safe, in fact advisable, that you raise your prices with
the increasing cost of materials, there may, in fact, exist an
opportunity to increase your market share. It’s all in the game of
pricing and marketing.

First, with every article of jewelry you produce, it’s useful to
keep records of the costs of production, separated into cost of
materials and value added costs. Materials, furthermore, might be
broken down into metals and as metals are the more
volatile component of material costs. Value added costs should
include all your overhead plus any profit. You need to know how much
it costs to operate your business, including such things as wages,
taxes, rent, utilities, insurance, and everything else you pay for
to operate. The idea that you can find a specific number to multiply
material costs by to arrive at price is not a wise idea, although
retailers typically price in this fashion. It is much more useful to
know what it costs to run your business, and you should track this
year by year and compare for changing costs. It is not unusual for
it to take a couple years in business to acquire an accurate profile
of your business costs.

But back to the issue of adjusting prices to protect your ability to
produce replacement inventory and stay profitable. You may decide to
adjust upwards your overall costs of operation as well as your
material costs, since you will inevitably find that costs such as
shipping and utilities tend to be rising nearly as fast as metal
prices. Remember, the rising costs of metals is due to a number of
factors, and some of those factors affect other areas of the
economy. But you need to at least cover what you’ll have to spend to
acquire precious metals to continue to produce your work.

Gold used in casting, at 14 karat purity (remember, karat is a
fraction of 24 karat purity as in 14 karat is 14 twenty-fourths
gold, the other ten twenty-fourths other alloys). What’s more, the
market price of gold doesn’t reflect what you pay for karat gold
casting grain. There is a premium, relative to purity, going to the
supplier who manufactures it. Typically, 14 karat gold’s actual gold
content (14 twenty-fourths), will cost you around 15% more for the
gold content than the market price that gold is trading at, and
should you contract out casting, it will cost you between 18-20%
more for gold. Even if you acquired 24 karat and alloy your own
karat gold, expect to pay in the neighborhood of 8-10% premium over
the market price gold is trading at.

What about silver?

Most suppliers of silver stock provide charts to calculate their
charges and accommodate rising silver prices. Likewise with gold,
but most gold suppliers make this calculation a bit more difficult.
In the case of findings, some suppliers provide prices based on a
gold or silver market price at the time of the printing of their
catalog, so it’s a simple matter of dividing their price by that
gold or silver price and then multiplying that number again by the
current gold or silver market price.

Here’s a typical breakdown of a hypothetical jewelry article, in
this case, a ring with 7 grams of 14 karat gold, 0.18 carats of fair
to good grade small diamonds, and a good grade amethyst in a
calibrated size, let’s say, 5 millimeters square princess cut. It is
a production item, so it’s cast using a rubber mold. But the initial
costs of developing the prototype and the mold to enable production
have to be defrayed of a number of units. Suppose you expect to
produce 100 of these before you discontinue production and the cost
of model and mold come to $500. That’s 5 dollars added to each unit.
Here’s a cost analysis using a price of $400 per ounce of 24 karat
gold, which has not become $630 dollars per ounce since you last
produced this item. Diamonds are stable at this time, in your
quality at $480 per carat, but you initially priced the item when
they were $380 per carat.

Back to our hypothetical jewelry article. Here’s the breakdown.

  Gold (at $400 per ounce market price) 

  5 grams at a cost of $8.97 per gram = $44.85 

  Diamonds (at $380 per carat), 0.18 carats = $68.40 

  Casting charges, $13.50 casting, $15 sprueing, and $8.00
  shipping = $36.50 

  Labor and overhead at $45 hour, 2 hours in finishing, assembly
  and setting (including cleaning and packaging) = $90.00 

  amethyst (shipping incidental if you ordered a significant
  quantity) = $18.50 

  prototyping and molding costs per unit = $5.00 

That brings us a total wholesale cost per unit of $263.25

Suppose we add a profit of 20%, that brings our wholesale price to
$315.90

If a typical retailer sold this, it wouldn’t be uncommon to mark it
up 150%, so multiply by 2.5 for $789.75 or $790.00

That’s a hefty price for such an item, and we haven’t even adjusted
that price to reflect the current metal and diamond costs. If we can
get a price break for the casting service by having 25 units cast,
we can bring that cost of casting down by $8.10 per unit, which
means that the final wholesale price comes down to $306.18 and that
gets reflected in a retail price, now, of $765.45. That $25 drop in
price might just make the difference in the appeal of that price
point to your market. Certainly, you’d want to look for price breaks
for diamonds, if you have the capital to lay out. The temptation is
to try and reduce your own labor costs, but that is only 34% of your
cost. Cut materials down and at some point you compromise the
integrity of the piece. Cut profits and you’ll hurt your ability to
grow your business. If you are the retailer, it’s logical to
decrease your margins, but be careful, a retailer has higher
operating costs and there is, somewhere, a point at which your
business will suffer. Look for more efficient production methods,
price breaks for quantities on materials, and keep an eye on if and
how much sales change after you adjust your prices.

Back to our example:

In the above product, we have a spit in costs between three things,
some changing, some not.

At the old gold and diamond prices, it comes to $44.85 in gold,
68.40 in diamonds, and $150 in labor, overhead, profits, and stable
material costs.

You can divide the gold cost by the old market price of $400, then
multiply that by the new price of $630, and now your cost of gold is
$70.64.

You can divide your diamond costs by the old price of $380 per carat
and multiply by the new price of $480 and now your cost of stones is
$86.40. This reflects a total increase in costs of $43.79.

Multiply this through your 20% profit to raise it to $52.55 and
that’s what you’ll need to add to your wholesale price. Multiply
that amount by your 150% retail margin and you will add a total of
$131.38 to the price the customer will or won’t pay. Surprisingly,
this reflects only about a 16.5% increase in the retail price. And
also, as we have seen, it might be possible to cut that increase
down, with quantity purchases, by another 3%. It’s a significant
change, but I think, manageable.

Here’s a brighter note:

If, in the above example, we were only looking at the increased
costs of gold in our project, we would see we have an increased cost
of production, at the wholesale level, of only $25.79. Working
through our profit factor and the retail margin, we’d see an
increase in the retail price of $77.37, more like a 10% price
increase. This might still affect the customer’s perception of the
price point of the article, but a little tweaking in the price might
make it work. Suppose, instead of taking the price up to $870, we
only raised it to $845. It appears closer to $800 that way than to
$900. We’d then have to work harder to bring costs in line, but we
might still move the same volume of product if we have the right
clientele Discretionary spending doesn’t follow the rules of other
purchases. It’s more emotional, and sometimes, when people feel
threatened, economically, the find relief in some forms of risky
spending. Just look at lottery ticket sales (perhaps an
uncomfortable comparison, I know).

It’s a shame that, as artists, we have to start whittling costs
anywhere and everywhere, but at some point, art becomes business,
and smart business is about being competitive everywhere you can.
Again, keep in mind all your costs of doing business are going up
all the time, but looking at it this way, it’s not the call for
panic that is our initial response to the seemingly dramatic rise in
the price of precious metals.


#18

I might be in error in saying scrapping for the sake of the rising
gold prices. But to keep merchandise longer than one year or 18 months
old is really ludicrous. That ring is almost out of style. New
designs do come in. What was fashionable then is almost passe’ now.
Don’t’ expect a client to keep coming back and seeing the same ring,
month after month. I once wrote an article in my first setting bookit
was about not getting married to your jewellery inventory.

Think of divorcing yourself from those “dusty” purchases and SCRAP
those olde mounts. Keep the diamonds (of course) but change your olde
and unsold mountings. What you bought 18 months ago when the gold was
lots lower can buy you newer stock. All you are losing is the labour.
I don’t say to sell everything, but be ruddy selective and now is the
best time to do this. I took out over 500 diamonds for my client but
those old rings were nice then, but notso nice now. He has his
stones. He is melting his rings and using his new found money to buy
nicer and more up to date merchandise. He hasn’t melted everything,
but was very selective as he went through his entire stock and had a
"separation/divorce" on items that were down right old. I knew he was
right, some of those rings are beastly now.

Gerry Lewy!


#19

I have to agree with this post about scrapping old things that
haven’t sold. I worked for a company that after about 15 years in
business decided to have a house cleaning sale. the women who owned
the store cleared about $75000 on old junk {there were a few good
pieces mixed in to get folks in the door, but mostly junk. HOWEVER,
some of her best repeat clients came to this sale. Later, several
folks asked when the next big sale would be, very scary, because
sales went down for a while due to this. She had saturated the
market with junk. She could have scrapped most of that stuff and made
a good chunk of money and kept the stones; which of course most had
gone up in value as well.

This whole idea of loosing labor is sort of tenuous to my way of
thinking. You make stuff, you are in business, you pay your bills,
this stuff you have made is already paid for. If you don’t sell it,
sits and costs you money in taxes. When and if you sell it you get
your money back and then of course the reimbursement for labor. But
if all of your bills are paid and it still hasn’t sold that pretend
profit on future sales is just that, pretend. Cut your losses and
recoup what you can. That labor was speculative at best. Time has
gone by, you haven’t needed that time spent to pay your bills so it
is non existent. Better to keep your cash flowing and the store
looking neat, clean and profitable. Nothing says looser more than
old unsuccessful pieces clogging up the cases. And if it is in the
safe it is useless. Everyone makes dogs once and a while, and
sometimes pieces are good but the market just isn’t there. Put them
on e-bay or melt them down.

Dennis


#20
This whole idea of loosing labor is sort of tenuous to my way of
thinking. You make stuff, you are in business, you pay your bills,
this stuff you have made is already paid for. If you don't sell
it, sits and costs you money in taxes. When and if you sell it you
get your money back and then of course the reimbursement for labor.
But if all of your bills are paid and it still hasn't sold that
pretend profit on future sales is just that, pretend. Cut your
losses and recoup what you can. That labor was speculative at best.
Time has gone by, you haven't needed that time spent to pay your
bills so it is non existent. Better to keep your cash flowing and
the store looking neat, clean and profitable. Nothing says looser
more than old unsuccessful pieces clogging up the cases. And if it
is in the safe it is useless. Everyone makes dogs once and a while,
and sometimes pieces are good but the market just isn't there. Put
them on e-bay or melt them down. 

I’m sure this advice is all well and good for those who are making
simple pieces from scratch with little labor involved and high value,
reusable materials. Unfortunately, those who are spending 30 hours on
an intricately woven silver wire cuff can’t afford to throw away a
weeks worth of fine work to reclaim $25 worth of silver. Also, most
actual jewelry store inventory (in the US, at least) costs far more
than the value of the metals and any salvage from the stones, which
were probably cut and matched for that piece alone by the
manufacturer and of little or no use in another, different piece. Let
me give you an example. In front of me I have a beautiful hinged link
bracelet, with 42 very nice, well matched, channel set 1.75
millimeter round rubies and 7 bezel set 8-point VS-2, GH modern
brilliant cut diamonds. The 14K 2-tone bracelet weighs 13.9 grams,
including the stones. This bracelet cost me $798.00 from the
manufacturer, and was well worth it for the fine quality of labor &
materials. Unfortunately, gemstone bracelets are as dead as Jimmy
Hoffa around here. What do I get by scrapping it out? Less than $150
for the gold, a small pile of rubies that cost as much in hand labor
to remove and set in a new piece as buying the new piece in the first
place would cost, and seven 1/12 carat diamonds that are far too nice
(and too expensive) to be salable in a circle pendent, which is
really the only ‘bulk diamond melee’ sales vehicle that has any
chance of actually selling in today’s market. In my case, multiply
this by about 500 pieces of various types, including many finely made
exquisite works of art passed over by fickle changes in taste pushed
by the discount jewelers in their ever forward quest to reduce the
fine jewelry market to ashes. Diamond cluster rings, tennis
bracelets, and right hand rings among others, are entirely unsalable
in my area except for imported trash selling for $100/carat retail.
In my case, multiply this by about 500 pieces of various types,
including many finely made exquisite works of art passed over by
fickle changes in taste pushed by the discount jewelers in their
ever forward quest to reduce the fine jewelry market to ashes.

Also, many artists and jewelry store owners DO depend on the
recoupment of their investment, whether in labor or inventory costs,
to repay lines of credit and personal credit cards that are often
charged to the maximum to hold out ‘until the economy improves’.
Sure, if the business is going gangbusters with profit, you can
always afford to lose a little on scrapping out a few pieces, but
within 100 miles of my store, at least 70% of the long-time
independent jewelers that were in business 20 to 30 years ago have
gone out of business due to the high costs of doing business, and
the collapse of the public’s interest in quality jewelry due to
decades of low-ball advertisements by the likes of Wal-Mart, Kohl’s,
Kmart, and the here today, gone tomorrow “International Gold &
(insert generic gem term here)” stores. A recent Kohl’s advertisement
lists 1/10th carat diamond circle pendants, with chain, set into
sterling silver. The price? - $19.99. Prices like this devalue ALL
jewelry in the eyes of the average consumer, whether the other
jewelry is a mass market tennis bracelet or a one-of-a-kind art
piece.

Lee Cornelius
Vegas Jewelers