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Pricing strategy for a newbie

#1

I have been reading the posts of how to price jewelry from a
perspective of veteran jewelers who have already established their
lines but how about for new jewelry makers just getting into the
business? I realize I will be making errors along the way but would
like it to be kept to a minimal and learn from you veterans who had
made mistakes. I am hoping that you can pass on your wisdom and “if
I could do it over again I would it like this” method would be
appreciaed if shared. Here are my questions and I am sorry if this
sounds elementary to you but like I said, I am a newbie.

  1. I have the cost for my jewelry item. You say that I have to add
    my “time $” into the cost. How much should I add? By the hour? By
    the piece? What? I don’t want to undervalue my piece of jewelry.

  2. Once I determine the costs for my jewelry item, does that include
    everything like how much I have to pay for my business license,
    credit card percentages that I pay the company to use it,
    electricity, etc. do I take this all into account?

  3. If I am selling wholesale to a boutique, shoppe, department
    store, how much should I expect they are going to need to mark it
    up? This way I know if my wholesale price would be in their range
    and I can also target the stores that can take the price and have
    the clientele I am focusing on. Plus I would know what to expect
    them to sell it to the public. Does the markup differ between a
    small boutique versus a large department store?

  4. If I want to participate in a craft fair, and I have my items in
    a big department store that I feel is over pricing my items. Do I
    have to sell my items at the craft fair for the same price as the
    department store even though I think its inflated? If so, should I
    try and come up with a different line for craft fairs and/or when I
    sell it on my own? For argument sake, if the retail price is
    appropriate, do I still have to sell it at the retail price of the
    stores or can I sell it a little cheaper? I don’t want to shoot
    myself in the foot, know what I mean?

  5. Jewelry buyers may ask me for bulk pricing, what is considered
    bulk pricing? If the wholesale price is $30.00 and the pieces are
    all a little different, should there be bulk pricing and if so where
    do I draw the line and how would I determine the bulk pricing?
    Instead of giving them a lower price per say on the item, would it
    be accepted to give them better payment terms or pay for shipping?

  6. What is accepted payment terms and shipping for the jewelry
    business? I was a clothing buyer long ago and found that vendors
    were paid in 60 days rather than the net 30 specified.

Any guidance, advice, and is appreciated. Regards, Dolphin

*This is an awesome web site…really kickin’!

#2

Hi Dolphin,

I have been doing jewelry for 3 years and am contantly learning,
evolving, etc. Recently, I have revised my pricing strategy based on
suggestions from a business coach rather than someone in the jewelry
business. To some, it’s appears completely backwards (it did at
first to me). But from a business strategy perspective, it makes a
lot of sense.

My initial approach was to take the cost of materials and double it
to create the wholesale price. And then double or triple THAT (often
referred to as keystone or triple keystone in the jewelry business)
to get my retail price. But a piece that was made of inexpensive
materials (such as sterling silver and semi-precious stones), but
required a lot of time to design and create wasn’t really covering
the costs of my time; whereas a piece made with expensive materials
(Tahitian pearls, faceted gems, 18K gold, etc.), but didn’t require
as much labor was a real boon in terms of profit. Additionally, this
method of pricing didn’t take into account fixed expenses (aka
overhead) such as the cost of tools/equipment, rent, insurance, etc.
So I realized that this formula was clearly flawed from a business
standpoint.

My new approach is to start with how much myself and my partner want
to net from the business (we are an LLC/partnership); let’s say
$7,000/mo. Next, I take into account my fixed expenses, that is the
costs that I incur regardless of how much jewelry I make or sell.
Let’s say fixed expenses are $2,500/mo. And let’s not forget
self-employment taxes, which would be roughly $1,070 ($7,000 X 15.3%
3D $1,070). So we are looking for a gross profit (which is in fact
gross revenues minus the cost of goods sold) of $10,570.

Now, we have to know (or guess at) the average ratio between our
costs of goods sold (the costs of the materials that are a part of
the finished jewelry such as metal and stones; does not include
labor or materials such as buffing compounds that are not a part of
the finished product). I use a ratio (also known as profit margin)
of 50%. That is, a piece that has $100 worth of materials might
wholesale at $200. Now, keep in mind that this is just an average
that we are using on our way to determine our actual labor costs.

With an average or estimated profit margin of 50%, we take the gross
profit ($10,570) and DIVIDE by 50%. This is the same as multiplying
by 2. The result is gross revenues of $21,140. What this means is
that I have to sell $21,140 worth of jewelry in order to earn (after
costs of good sold, expenses and self-employment taxes) $7,000.

Now let’s assume that my partner and I are each working in the
business 40 hours each week for a total of 80 work hours or between
the two of us (344 hours/mo). Now we’re going to create an algebraic
equation (don’t worry, just follow along; there won’t be a test) to
determine a base hourly rate.

With “N” being the hourly wage we want to figure out, we can create
the following equation:

	344 hours/month X "N" dollars/hour = $21,140/mo  
	344*N=21,140
	N=(21,140)/344
	N=61.45

But here’s the kicker – we only spend 60% of the time actually
making jewelry. The rest of the time is spent making sales calls and
doing office work. So we need to adjust our hourly rate to
compensate for time not spent making jewelry. We need to divide our
base rate by 60%. The result is an adjusted rate of $102.42/hour
($61.45/60%3D102.42).

Now we can determine our actual price for a piece of jewelry. A
piece of jewelry with $200 worth of materials and takes 30 minutes
to make (for example a cast gold ring) would wholesale for $261.
Under my previous pricing strategy, I would have made $400. But keep
in mind that it only took me 30 minutes to make it.

	(200+(102*.5)=261)  vs. (200*2=400)

An elaborate piece that was comprised of $100 worth of materials and
took me 4 hours to make including soldering, stone setting, and
finishing (for example a fabricated silver bracelet with set stones)
would wholesale for $508. Under the old method, I would have sold it
for $200…for 4 hours work!!!

	(100+(102*4)=508) vs. (100*2 0)

Now would someone be willing to pay $508 for a silver bracelet? If
it’s well-made, yes. Think about David Yurman. Yes, he is a renowned
designer, but what makes his pieces popular are not so much the
materials used but the attention to detail in the design…oh and
the extensive marketing campaign.

#3 
   1) I have the cost for my jewelry item.  You say that I have to
add my "time $" into the cost.  How much should I add?  By the
hour?  By the piece?  What?  I don't want to undervalue my piece of
jewelry.

Buy the book “How to Sell What You Make” by Paul Gerhards and
Homemade Money by Barbara Brabec and all your questions will be
answered.

To address question number one: one way some people do it is
hourly, so time how long it takes you to do a task, okay 15 minutes,
this much an hour…

or you can price each task as though you were a bench jeweler doing
a job envelope. So you write up your info. on each piece of
jewelry, this much for metal, x for soldering the earring post on,
etc.

I heard a speech by a potter once, and he said he paid himself
$10.00 an hour for everything, including mowing the grass.

Another way to determine your hourly fee is:

How much do you want/need a year to live? Take that number, divide
by how many hours you can produce (subtract sleep and time at shows)
then determine what hourly rate do you need to achieve that annual
income.

Sounds crazy, when you’re just starting out, but it’s a good
exercise.

Elaine Luther
Chicago area, Illinois, USA
Certified PMC Instructor
@E_Luther

#4

Joanna, David Yawnman? Did you mean expensive advertising campaign? I
used to do repair work for Nordstroms and David Yurmans stuff was
always falling apart the workmanship is uh, to use an old Scottish
term, craaap. Sorry. I just cannot imagine myself taking a $10
amethyst and slapping it into a bracelet you could have manufactured
in Bali for $6 and selling it for $600.

Regards J Morley Coyote Ridge Studio

#5 
 I just cannot imagine myself taking a $10 amethyst and slapping
it into a bracelet you could have manufactured in Bali for $6 and
selling it for $600.

If I thought I could get away with it, I would do it! One Orchid
member (Hi, J.S.) told me that he knew David Yurman when he was
making and selling brass belt buckles. Now I see billboards of his
jewelry on the side of the freeway (in little ol’ Charlotte). Now
there’s a guy from whom I would like to take a marketing workshop!

Dave

Dave Sebaste
Sebaste Studio and
Carolina Artisans’ Gallery
Charlotte, NC (USA)
dave@sebaste.com