Ethics and Profit?

Jewelry Discussion
1

Suppose you quoted a retail price for a special order based upon a
known, legitimate, reliable source for the material. Then suppose you
found the same quality of material elsewhere, also a known,
legitimate, reliable source, at a substantially lower cost. Same
stuff, half the price. There’s no labor involved, buy it - sell it.

What do you do? Hold to your quotation and keep the higher yield?
Reduce your retail to reflect your usual markup and pass the savings
on to the client? Somewhere in the middle? And why?

What does this scenario say about sourcing? What does it say about
established pricing policies.

2

If the formula is [4 x materials cost], + markup for design, time,
ect., then I would pass the savings along to the customer. Following
the formula, I make the same money, the customer appreciates the
break and the honesty, thus word of mouth comes into play with new
customers. A big win.

Veronica

3

here was a previous post that said lower the price, the customer
likes a lower price and you still made a profit.

If you quote a price and it’s MORE, do you ever call the customer
and get MORE money?

Doubtful.

If I quoted the customer a price and they liked it and your cost is
a little lower, I’d keep the price. If it was half price and the
customer 1st said OK, I’d give 10% discount “I got a break and I’ll
give you a break”. That’s nice. But you hardly ever get a chance to
make up for a mistake.

Most JEWELERS charge TOO MUCH for their product and too little for
their labor. Make up for it.

My price book is based upon a 3 time markup on material and 4 time
markup on labor costs, based upon a jeweler earning $40,-$55,000 a
year.

David Geller
JewelerProfit
510 Sutters Point
Sandy Springs, GA. 30328
www.JewelerProfit.com

4

I would leave the price the same. First, the price was already
accepted, and my work is worth exactly what someone will pay for it.
This time, I got lucky.

Second, if I lower the price, next time I may not get so lucky on my
sourcing and there might be an unrealistic expectation about the
price. This could create resistance to the sale.

Noel

5 
But you hardly ever get a chance to make up for a mistake."

I’m sorry. I don’t understand what mistake you are talking about.
Why should a future customer pay for a mistake you make in your
pricing?

Most JEWELERS charge TOO MUCH for their product and too little for
their labor. Make up for it."

Forgive me, but like the line in “Big”: I don’t get it. You seem to
be saying that you should make up for charging too much for product
and too little for labor and “make up for it” by somehow charging
another customer for that? That’s the epitome of unethical to me. I
stand by what I said. I think ethics last a lot longer than meager
profits from the one customer, and the good will garnered by passing
on the “break” in pricing to a customer is greater than gold and a
lot more profitable in the long run.

Just my humble and very solid opinion.

Veronica

6

Neil,

Suppose you quoted a retail price for a special order based upon a
known, legitimate, reliable source for the material. Then suppose
you found the same quality of material elsewhere, also a known,
legitimate, reliable source, at a substantially lower cost. Same
stuff, half the price. There's no labor involved, buy it - sell
it.

I do spend time checking different sources and end up in the
situation you are in. I try to find the best source, depending on the
price of the item, I will mark it up keystone, 2.5, or 3 times
depending on what it is. If you can charge a 3x mark up on the lower
wholesale piece and you can be happy with the profit from that, that
is what I probably would do, and I inform my customer that I got a
good deal and saved them money.

In a good economy( see below*) I make people aware of suggested
retail for items and the price I am charging, and I attribute that to
my location and the low rent I pay. I do tell them the price it
would be at the high end store in town, and tell them if I paid the
rent they do I would charge what they charge.

I gain customers this way, and they send their friends in. I seem to
remember you have very high rent, so you might take into
consideration, if you had bought the item from the higher priced
dealer, charging your normal mark up for that and sell the lower
priced item at the price of the higher priced item is how you get
paid for the research you did. It is not unethical or immoral in
anyway shape or form.

What does this scenario say about sourcing? What does it say about
established pricing policies.

It says to me that there can be large differences in wholesale
prices, and I check around because of this, I can get a better deal
for my customers, and/or make more profit for myself I try to
navigate being fair with how the economy is doing and what my
expenses are. Lately I have been raising my prices as we have been
hurt by the weather and the other ongoing issues that are causing
sales to be down.

*In Denver retail has been really hurt by all the snow and cold
weather, I have heard more small business owners complaining about
how bad business is then any other time in the last 15 years. I feel
that the only way I might survive is to have a get tough policy and
not be so generous yet still be fair. For years customers have told
us how fair our prices are, so I figure in lean times I will keep my
loyal customers and stay in business by charging more. Where I know
others charge triple key, I had been between keystone and triple key,
now I am at triple key for survival.

I have not had any resistance to the higher prices I have been
charging for repair and custom. We have a very high percentage of
repeat business, so we must be doing something right

Richard Hart

7

Hi Neil,

What do you do? Hold to your quotation and keep the higher yield?
Reduce your retail to reflect your usual markup and pass the
savings on to the client? Somewhere in the middle? And why?

Interesting question. What I would do is pass some percentage of the
savings on to the client. The percentage would depend on the amounts
involved (and perhaps whether or not I had correctly estimated the
labor costs for the item). The reasons are these…

I would not pass on 100% of the savings because there are other
times when I underestimate on quotes and this would help compensate.

And the reason I would pass on any percentage at all to the customer
is that this action which would be totally unexpected could have
nothing but a positive effect and possibly gain you a customer for
life. I can envision the customer saying to her friend: “Do you
believe that he quoted me $1000 but only charged $950?! He said that
his costs were less than expected. Now that’s the kind of guy I want
to do business with!”

I see this less as an ethical question and more of a good business
decision again depending on the amounts involved and the particular
situation.

Beth

8 
Suppose you quoted a retail price for a special order based upon a
known, legitimate, reliable source for the material. Then suppose
you found the same quality of material elsewhere, also a known,
legitimate, reliable source, at a substantially lower cost. Same
stuff, half the price. There's no labor involved, buy it - sell
it.

It says that you lucked out. It barely makes up for all the times
you quote a price using a known source only to discover that that
source has dried up and you must pay more for the material and still
charge the same as you quoted.

Contrary to popular opinion, a profit is not unethical.

9 
Second, if I lower the price, next time I may not get so lucky on my
sourcing and there might be an unrealistic expectation about the
price. This could create resistance to the sale.

I disagree. I think a customer would understand from one sale to
another that materials costs are what they are. If you get a break on
materials costs and express how lucky we all are on getting the
break, also expressing in some fashion that it is likely an
aberration, they won’t likely expect the lower cost next time. Call
me Pollyanna. I don’t mind. My ethics are intact and it’s simpler for
my little brain.

V.

10

To some degree, I think the focus in this discussion is on a red
herring. As someone on the list once pointed out, you don’t have an
expectation of what to pay for a car based on the materials cost that
went into it!

Depending upon the part of the jewelry marketplace you’re in,
materials cost may be the very smallest portion of the costs involved
in the piece being sold. The other components that make up the costs
include manufacturing time, store and/or studio rent, amortization of
all equipment and tools that you have invested in, advertising, and
all of the other costs of doing business. Those add up to the COST of
that piece. They do not and should not add up to the PRICE of the
piece.

The price of the piece is determined by its value to the purchaser
(the basis of free-market economics). That price needs to exceed your
costs to produce the piece, of course, but also includes the design
aesthetic, perceived value, emotional response, and desire of
ownership that can be hard to quantify.

Let me give an example, albeit an extreme one. There is a wonderful
artist near me who creates these gorgeous, intricate knotted
necklaces. They retail for $450 - 750, depending on design, and
aesthetically are more than worth the price. They are truly works of
art. BUT… her basic materials cost for each one can’t possibly
exceed $20, being really generous. If she adds a stone to a piece,
based on the type of stones she uses, we’re talking another up to
$20.

In the discussion we’re having here, you’re asking whether if she
gets a really good deal on the stone or thread that she should
discount the piece. I don’t think so.

This example is extreme in that this artist is working with
materials that are substantially cheaper than silver, gold, platinum,
diamonds, etc. However, the same equation applies to our work in
metal, just with different markups in the equation.

The key here is that it’s important to factor in ALL of the
components of your pricing equation, not just have tunnel vision
about the cost of materials because it’s the easiest to quantify and
the most obvious component. When you take a look at the RELATIVE
percent of change in the equation based on that supply change, my
guess is that the price difference to the customer won’t be much at
all.

Just more food for thought!
Karen Goeller

11

Veronica,

My opinion is that if you own and operate a retail jewelry store, you
are faced with making decisions that have to do with staying in
business, and sometimes you do have to make it up, and it would only
be an ethical issue if you do not have experience of running a retail
business. As ethical as any of us can be, if everything we did was
strictly “ethical” none of us would be in business. If I have been
charging too little for labor for a long time, and I needed to make
up for it, I would have to raise my prices higher than if I just
needed to raise prices for the increase due to inflation, so I would
be charging all my customers for my past mistake. You can be paying
for this every day in any business you make purchases from. The price
you pay at department stores include the charges they incur for the
time and paperwork for them to do returns. You pay ahead of time for
the possibility that you might make a return.

Richard Hart

12 
I think ethics last a lot longer than meager profits from the one
customer, and the good will garnered by passing

Hurray!! The answer to this question lies in goals, I think. Do you
want to make a buck? Charge as much as you can get. Do you want to
have a business that thrives, has repeat business and brings in new
business? Then do the right thing and charge what’s fair - and tell
the customer if it’s a deal and why, take the PR value. On the other
hand, I was showing some $25,000 diamonds, and the clients didn’t
like something about all of them, so I got another one. It was better
than the others, but 5-$6000 less to me. So I gulped, said, “This
stone is worth $xxx put in a group with the other ones.”, and made
like $7,500 on the deal. I did cry all the way to the bank, but the
people to this day rave about the diamond and the deal. That was more
extraordinary, though, and generally I use replacement cost as a
basis, as is fairly common.

13 
Contrary to popular opinion, a profit is not unethical.

That makes sense. As I think about it from a business standpoint, it
does make sense that if the customer accepted that price, no harm, no
foul if there is more profit in it because of sourcing. I guess I
wasn’t thinking of it from that point of view.

V.

14 
I think ethics last a lot longer than meager profits from the one
customer, and the good will garnered by passing on the "break" in
pricing to a customer is greater than gold and a lot more
profitable in the long run.

Just my humble and very solid opinion.

I don’t remember who said this famous quote but…

‘You’ll never go out of business making a profit.’

A jeweler should look at profits monthly and then by job.

Zales thinks they are ethical. Costco co.

Zales has a 60% margin, Costco has a 20% margin.

I have done a lot of stupid things in my life, seems to continue
year by year too! I remember this one when I started in the 70’s. I
bought a chain from vendor B for $30, triple key to $90. Sold all of
the chain I stocked. Always sold out.

Then a new vendor came by and the same chain costs from this vendor
$24. I triple keyed it to $72.

Sold all of it.

Years later I said to myself

“Dummy, why didn’t you buy at $24 and sell at $90?”

I missed $18 of extra profit on every sale. That $18 adds up.

To the point of not charging enough, most jeweler do not charge
enough for their labor. Period. And starve to death. On product, if
you’re missing sale and you think its because of the price of the
product, it could be. But once the price is agreed on, the customer
is happy.

Guilt makes most folks lower the retail if the get a break
themselves.

But most folks don’t think about making it up someplace else. A good
example is this product cost that is driving this thread. OK, so you
quote the NEXT customer a price and the finding or stone suddenly
isn’t available. You have to pay more and you absorb it. Happens, but
not too often.

What happens a LOT THOUGH is you quote actually 2 prices.

One for material, which you sell at $100, you think it costs you $40
and by George it DOES cost you $40.

But you quoted $200 to make the piece for 2 hours time. The flask
blows up and you have to start over, or you just take longer than you
thought it would take (most people under charge for labor) and you
lose.

Not giving a break on the previous example would make you come out
better on the losing job.

You can count on 2 fingers the amount of time you get such a great
price break.

You’ll need your hands, feet and your friends hands and feet to
count the number of times you under figured time on your estimates
and came up short.

David Geller

David Geller
JewelerProfit
510 Sutters Point
Sandy Springs, GA. 30328
(404) 255-9565
www.JewelerProfit.com

15

Richard, I mean this with the greatest respect. I guess I would
never be able to do retail if that’s a regular occurrence. From a
business standpoint, maybe it makes sense. But I’m only on earth for
a short time, and my purpose is to make it through to the end time in
the best possible way and with the least han to others around me and
the greatest amount of kindness I, with my human failings, can
muster. It just doesn’t sit right with me. But like I said, I’m not
in the position to need to sell. I’m in the position to get to sell.
I do know it makes a big difference in perspective. I respect all
those who choose to make a living with artistry. And I know it can be
difficult on the financial side.

Veronica

16 
My opinion is that if you own and operate a retail jewelry store,
you are faced with making decisions that have to do with staying in
business

While its good to be the King sometimes it sucks to be the boss.
Richard I agree with you. Before prosperity comes survival. I’ve had
my ups and downs in my career and only lately have I nearly
eliminated the things about operating a business that brought me the
downs, both financial and psychological. In my early years of
wanting to run a store I had day dreams of sitting behind a desk with
the world at my feet. It doesn’t work that way. Everything that
happens is a result of the decisions the owner makes and how he/she
goes about implementing them. Payroll due at the same time as
quarterly taxes with just enough cash for one of them? Well, you make
the decision and you deal with the consequences. Keep your staff
because you feel that is the ‘model’ or pay your taxes and sleep at
night. “I can’t operate without staff. staff makes me the money I
need to pay the tax” So now you are the rat in the big wheel,
running, running, running.

I certainly don’t want to discourage anyone from starting up but its
wise to be aware that decisions come hard and the results sometimes
harder. To operate strictly on hope is truly foolhardy. Take it from
a fool. Or ustabe fool.

Oops, went off at the keyboard again. Update on this situation
though…I ordered the merchandise from both sources and the cheaper
goods were markedly superior. I gave the customer the better goods
at the agreed price of the lower quality but higher cost goods. She
got better than either of us anticipated, I did better dollar wise,
and the quality of her ultimate purchase can’t be knocked. So I
served her best interest I believe, while serving mine.

At least that’s how I reasoned it.

17

Neil,

I ordered the merchandise from both sources and the cheaper goods
were markedly superior. I gave the customer the better goods at the
agreed price of the lower quality but higher cost goods. She got
better than either of us anticipated, I did better dollar wise, and
the quality of her ultimate purchase can't be knocked. So I served
her best interest I believe, while serving mine.

Congratulations, on your hard won wisdom, from someone who in the
trenches with you.

Did I ever tell you the one about a guy who did not know about memo
who had his first retail jewelry venture. 11 carat fancy yellow
radiant cut diamond was requested, prices were at about $100,000.

I located one while at the Tuscon gem and mineral show, told my
client he flew to Scottsdale, Az. and purchased it, I got a $1500
finders fee. He paid about $30,000. If I had got it on a memo, I
could have made at least $20,000 The guy who purchased it came in
again, with a briefcase, showed me his collection while it was out
of safe deposit box. I asked if it was worth a million, he said two.
Fine rubies, sapphires and diamonds one I remember was a 6 carat D
flawless diamond, ect. I have not had an opportunity like that in
the last, oh…about 18 years!

Richard Hart