The cost of holding out

[dgeller]

I had someone email me about not wanting to deeply discount old
stuff to get rid of it but rather wait until it sells for a profit.
They’d sell for a slight discount but not at or near cost. I wanted
to share the “numbers” of holding out.

The names have been changed to protect the innocent

By waiting it out to sell to someone at a good profit what you LOSE
on old inventory is PROFIT OVER THE YEARS IT’S BEEN THERE.

Look at this:

You buy a ring for $1000 and retail it at $2200 January 2000. It
sits and sells in December 2000. Your gross profit? $1200.00.

What do you do with the $2200 check? Take $1000 of it and buy
another! That leaves you with $1200 in profit to pay bills. Got it?

The first year (2000) YOU bought the $1000 item with YOUR money. In
year January 2001 you buy the next one with the CUSTOMER’S money!
Cool.

Now it’s January 2001, you bought it, tagged it, and wait.

It sells in December 2001 (cool-a turn of “1”) and makes a gross
profit of $1200.00. Very cool.

How much has your initial investment in January 2000 (a year ago)
brought to you in total? $2400! Yes two years profit of $1200 each.

Do it again in 2003 and make now in 3 years you’ve made $3600.00 in
total profits. Not bad for a $1000.00 investment.

That’s the way it should be. Doesn’t always work out perfectly but
that’s your goal.

Now let’s use the bosses theory: “I ain’t selling it unless I make a
profit!”

Well how much profit should a three year old piece of jewelry make?
Simple, $3600, right? $1200.00 per year over 3 years equals
$3600.00.

So if you wait three years and discount it 20% in year three it will
sell for $1760.00, gross profit is $760.00. You didn’t make $760.00,
YOU LOST $2840.00!

Why? Because it should have made $3600 in gross profit in 3 years
but only made you $760.00. The difference is $2840.00 in lost
profits.

You need to cut your loses WAY before 3 years. Start getting rid of
bad stuff at 12 months and be diligent after that.

Why? Because if it didn’t sell in year one and you sold it even at
40% off ($1320.00) you’d make $320.00 in gross profit. The $320.00 in
gross profit goes to pay bills and you take the $1000 and put it
something that WOULD TURN, in the next two years you COULD possible
make the $1200 per YEAR gross profit for year 2 and 3.

So here’s what you could make discounting heavily after 12 months
and re-investing.

Profit Year

$320.00 1
$1200.00 2
$1200.00 3

Total profit in 3 years by dumping and re-investing $2760.00.

If you held OUT for 3 years and sold at full retail of $2200 your
profit in 3 years would be $1200.00. You’re still $1560.00 short in
total 3 year profits.

Waiting for someone to buy it at YOUR price can’t compete with
turning it, dumping old no profit generating items.

The way to make holding out over three years compete with my
suggestion is this:

Remember you want $3600 in profits in 3 years?

If you hold the $1000 cost ring for three years, you’d have to SELL
it in year 3 for $4600.00! That would be the 3 years of profits plus
the cost of goods. It only was tagged at $2200.00 originally.

In addition you have the situation that the excess inventory you
PAID FOR or OWE is not bringing in the profit required each year but
you have to pay for the product in year one even though it returned
no money back to you in year one. Therefore you OWE a lot of money,
either to the bank, credit cards, accounts payables or the owner
doesn’t take out much money. Or all of the above.

If you get keystone and run a store that has overhead at 40% there’s
no way you make enough money to PAY for inventory you WILL sell in
year one and inventory you won’t sell in year one. Think of it this
way. Can you pay during the year the inventory you’ll need THIS year?
Yes.

Can you pay THIS year for the inventory you’ll need over the next
THREE years? I doubt it. Besides you might not need that much
inventory anyway. Selling it off could be sued to pay bills and not
owe so much. The amount of inventory you should have is NO MORE than
the amount you wills ell from the case in ONE YEAR.

You’re married and sleep with your spouse. You’re not married to
your jewelry. It’s just a love affair or a lust affair. A money
lust/love affair. And just like an affair, if you don’t PUT OUT then
GET OUT!

Jewelry is not bought to make you a profit. Your BUSINESS makes you
a profit. Jewelry is just the tool you use to make the profit.

Sincerely
David Geller

[LSHancock]

David,

Thanks for your wonderful perspective! It really makes a
difference. I have a question for you from the manufacturing
perspective. Say I make a piece and the gold and stone cost is $200
and the labor cost is $200 (my hourly rate x time to manufacture the
product). The wholesale cost I would charge is $600 (double the
cost of materials). I would retail it at a show for $1,200. Now,
if that piece doesn’t sell after a year, how do I decide what my
investment in that piece is $200? $400? Should I treat labor the
same way as I do cash? Or, do you have some other fantastic insight
into this situation?

Thanks again,
Larry

[dgeller]

Hi Larry

My first question is why you markup material and not labor. Is the
labor the hourly rate charge or your cost? If labor is your jewelers
wages PLUS taxes then you’d mark that up. Even if the jeweler is YOU.

From what you said your cost is $400.00 to make. If you're
wholesaling for $600, your cost is still $400.00. 

If you retail it for $1200 your cost is still $400 but YOU could
make wholesale profit getting rid of it at half retail.

I’d still figure your cost at $400.00.

David Geller

[MillsGem]

David, I constantly marvel at your single minded approach to
marketing. You always suggest that prices should be as high as
possible so that profit can be maximised.It seems to me that you do
not include the concept of competition in your vocabulary !

Apparently you perceive that the best method of business is that of
squeezing the last drop of money from the customer. I have never, in
your many posts, seen any reference to the merit of being
competitive. And yet, most modern consumers are increasingly
sensitive to getting a “fair deal”. I don’t fault profitability…I
derive my living from profitability. Nonetheless, I do not do
everything possible to milk the customer. I try to give the customer
a reasonable value on the assumption that he will appreciate the
fact that he is not getting screwed. As a matter of fact, I assume
that the best business arrangement is one in which BOTH parties get
fair value !

I can readily appreciate the fact that you are preaching the gospel
of the fact that many jewelers don’t realistically value their
services, but I also perceive that your generalizations more often
than not apply basically to jewelers who operate mall type stores or
jewellers who have high rent , employee laden stores.

Regardless of your SENTIMENTS , you are ignoring the fact that in
the real world, competition prevails. Furthermore, I want to thank
you for your inadvertent service to those of us who are the small
town jewellers who have to compete with the faceless corporate
competitors. They have the onus of having to support employees who
have no stake in their success, the monumental burden of paying
astronomical rents and the burden of remaining open for business
beyond normal expectations. WE can give the service that customers
yearn for, and we can make prices that don’t include the penalties
that premium locations demand.

Basically, your continuing thesis, suggesting that contemporary
jewellers are not charging enough, flies in the face of the fact
that we are now in another world in which labor has diminished
value. Now it is time to realize that we must accept the fact that
we cannot charge nearly as much for labor intensive endeavours
because a global economy has devalued labor. Ron at Mills Gem, Los
Osos, Ca

[JSEllington]

I have heard that one way to sell the slow movers is to raise, not
lower, the price. An acquaintance who sells wire-wrapped jewelry
swears this works for her. Anyone else had this experience?

J. S. Ellington

[bericho1]

Since I don’t actually run a “shop” or “business” I probably
shouldn’t even open my mouth about these comments. I only sell a few
things here and there. But I do know that when I go shopping, I see
all the “jewelry” imported from Africa, India, etc…and while the
workmanship is basically primitive, that seems to add to the
attraction of the piece. These items are sold so inexpensively and I
know they can’t compare to the quality things that are in the fine
jewelry stores - but I do think they definitely affect the way that
some people view prices. I think you are right about the fact that
the global economy has devalued labor. In our current economy, it
would appear that most everything is being devalued. Obviously if
you are to support yourself with your business, you do need to be
making a profit so I think David’s approach has sound merits. If I
were actually running my jewelry making as a business I would
certainly pay attention to what he has to say. I think you can
review your pricing scheme using his info as a guide. I don’t believe
he is eschewing that you MUST price your things exactly as he says .
But he has certainly covered all the bases. There is room, I think,
for other viewpoints and each of us has to find what works in the
area where we live and for the type of work we do. But as for me
personally - I have begun to charge a little more for what I do
because of what David has written and have been surprised that it has
been accepted so well.

[Red_Rodder]

Ron, I normally read your posts with a lot of attention and respect.
I think that you are missing the boat on this though.

   You always suggest that prices should be as high as possible so
that profit can be maximised.It seems to me that you do not include
the concept of competition in your vocabulary ! 

I think that you are making a number of mistakes. He is talking of
competition. The fact is that most of our competition outside of the
large corporate stores don’t understand how to do business. We have
been competing ourselves into holes. A huge number of us go out of
business because we are so worried about losing a little business
that we will do a losing business in the hope that we can somehow put
the other guy aout of business before we go. Not a good strategy. A
better idea would be to go to business school before we set up shop.

    Apparently you perceive that the best method of business is
that of squeezing the last drop of money from the customer. 

I don’t see David squeezing the last drop of money out of the
customer so much as I see him maximizing the profitability of each
transaction. Often, this results in a quarter here or a quarter there,
but each of those quarters carries to the bottom line. This is not
just a small percentage that comes out of the gross. It turns out to
be a large percentage of the bottom line.

    I have never, in your many posts, seen any reference to the
merit of being competitive. 

Competitive means “still in business” in my book. If one wishes to
stay in business, one had better make a reasonable profit.

    And yet, most modern consumers are increasingly sensitive to
getting a "fair deal". 

You aren’t just talking about modern consumers. Consumers have
always been sensitive to getting a “fair deal”.

    Nonetheless, I do not do everything possible to milk the
customer. 

Dave’s also got a lot of suggestions for promotions that may involve
free services. This may or may not involve an exchange at a later
date. If you wish to provide free services to remain competitive, be
my guest. To be sure, I have provided plenty of free services over
the years. My personal opinion is that if you don’t charge for it the
client will think that you did nothing for them and likewise will be
generally unappreciative. Great! Now we can be underpaid and
unappreciated!

    I can readily appreciate the fact that you are preaching the
gospel of the fact that many jewelers don't realistically value
their services, but I also perceive that your generalizations more
often than not apply basically to jewelers who operate mall type
stores or jewellers who have high rent , employee laden stores. 

The high rent and high employee costs should be offset by the values
that each provide. Mall stores generally get a lot more traffic that
strip malls or my garage. Thus, to get that traffic, you pay a
premium. That premium should pay off with an increase in business.
Maybe one needs to raise prices to pay the rent, maybe not.

    Regardless of your SENTIMENTS , you are ignoring the fact that
in the real world, competition prevails. 

Dave hasn’t forgotten competition. He just knows that most jewelers
are generally undereducated in the vagaries of a competitive business
world. He is pointing out that we don’t have to try to undercut
ourselves buy trying to “charge a little less” than the other guy.
Business costs. Money is required to do business and if we don’t first
and foremost insure that we are profitable, we will surely go out of
business.

I have had cistomers say to me “Well they told me that they could do
it for half of that.” I will cheerfully send them down the hall to get
that item. Why would I want to waste my time on unprofitable work? An
accountant suggested to a buddy of mine that was selling equipment
below cost Hey! Save yourself some time! Just put $50 bills in the
packages and send your money out that way!

    Basically, your continuing thesis, suggesting that
contemporary jewellers are not charging enough, flies in the face
of the fact that we  are now in another world in which labor has
diminished value. Now it is time to realize that we must accept the
fact that we cannot charge nearly as much for labor intensive
endeavours because a global economy has devalued labor. 

And, so now I should take my goldsmithing skills and settle for $8
an hour? I think not. We need to change to remain competitive.
Currently, I am moving into the CAD/CAM arena with all of the gusto
that I can muster. I can make twice as much custome jewelry and I
haven’t lowered my prices. You go ahead. Lower your prices. Be
"competitive" that way. I’ll be competitive by changing the ways that
I produce product.

I am not well on my way to getting rich, but I am doing a lot better
since listening to Dave. Thanks, Dave!

Bruce Holmgrain
JACMBJ

[dgeller]

Regardless of your SENTIMENTS , you are ignoring the fact that  in
the real world, competition prevails.

Product sales are price sensitive. REPAIRS are not price sensitive,
they are trust sensitive… That’s why there’s no competition to speak
of. People have you fix their jewelry because they trust ONLY you.

If you’re not making enough income it’s because you have not asked
the customer to pay more.

David Geller

[Annette_Andres1]

        I have heard that one way to sell the slow movers is to
raise, not lower, the price. An acquaintance who sells wire-wrapped
jewelry swears this works for her. Anyone else had this
experience? J. S. Ellington 

Yes I have. Last summer I worked with my 19 year old daughter so she
could make a simple silver ring with a 5mm cab to sell along with my
more elaborate pieces at the summer art festivals I sell at. I
wanted her to quickly sell her pieces and be excited about learning
to make jewelry so I priced them at $24 to sell quickly. We didn’t
sell one at the first show. I turned the numbers around $42 and we
sold them all and had to make more. The fact is they should be $42
or higher with the labor and all involved. Annette

[dgeller]

       It seems to me that you do not include the concept of
competition in your vocabulary ! 

In product sales you have to be competitive. In shop sales there’s
no such thing. Firstly shop sales are not price sensitive, it’s TRUST
sensitive. Issues of trust does not make it competitive. Secondly
"competitive" means selling in the same price range as others.
That’s fine in product but not labor.

In product sales if you buy an object for $100 and sell it once in a
year for $225.00, you made $125. You’re happy. If a “competitor"
moves in and sells the same thing for $165.00, for you to be
"competitive” you too have to sell it for $165. But now you make
only $65.00. How can you make a living?

easy! sell two in one year! That’s $65 in profit twice and you’ll
still get $130 in profits in 1 year. Your profit on product is
gauged by how many sell in a year.

Not so in labor, like repair and design. If you pay a jeweler $100
and sell it for $225, you’ll make $125.00. It took the jeweler
(example) a day to do this.

If some nincomput comes in and charges $165 and you are
"competitive" and also charge $165 you lose! Why? because you can’t
sell two. For you to sell two in the same day means not producing TWO
items in 8 hours, you can’t. So the only way to make money up for a
lower price while keeping your cost at $100 per sale you’d have to
work 16 hours that day, ar regular wages (no overtime pay). Do you
want to work an 16 hour day?

       Apparently you perceive that the best method of business is
that of squeezing the last drop of money from the customer. 

If you’re going to ompete in what you’ve said that means you charge
as others charge. Why in the world would you want to COPY (that’s
what you’re doing if you charge the competitors rates) someone else
who is losing money from the benck and work your butt off for no
money. Go get a really good paying job.

I have never, in your many posts, seen any reference to the merit of
being competitive. And yet, most modern consumers are increasingly
sensitive to getting a “fair deal”. I don’t fault profitability…I
derive my living from profitability. Nonetheless, I do not do
everything possible to milk the customer. I try to give the customer
a reasonable value on the assumption that he will appreciate the
fact that he is not getting screwed. As a matter of fact, I assume
that the best business arrangement is one in which BOTH parties get
fair value !

Competition is related to product. I know of stores that charge $7
to size a ring smaller and there’s on in Ft Worth TX that charges $90
to size a ring smaller with a torch and $120 with a laser. 70% of the
sizings are done with a laser. Both stores have a 90% closing ratio!
There’s no such thing in milking the customer in repairs and custom.
No one forces them to buy. I rented a car on 9/11 to drive home
being planes weren’t flying. I was charged 50% more than normal,
that’s milking. CHOOSING to have one of the finest craftsman in the
city make my wife, whom I love and adore, a really wonderfully
crafted ring for more money than the jerk down the street wanted is
my choice. And if I believe, because of the way you presented the
sale to me, that it truly be wonderful and my wife will love it, then
I’ll pay.

But if you are cheaper and it’s not nice quality, I’ll come back. And
if it’s nice quality but you’re higher on the next custom piece or
repair and I trust you, I’ll pay.

    I can readily appreciate the fact that you are preaching the
gospel of the fact that many jewelers don't realistically value
their services, but I also perceive that your generalizations more
often than not apply basically to jewelers who operate mall type
stores or jewellers who have high rent , employee laden stores. 

Ye Gads man, if you have high rent then you only have two choices:

1. SELL MORE PRODUCT: That’s turn and will make you the same money
   as charging more.

2. CHARGE MORE FOR YOUR LABOR. You’d have to. Your jeweler is not
   faster and your jeweler can’t be cheaper than the guy down the hall.
   Try OFFERING more rather than charging less. Offer while you wait
   service at 50% more, offer a longer guarantee, have the best
   craftsmen in work for you (a real reason to leave my wife’s treasure
   with you) rather than paying low wages for lowly trained, just get
   by jewelers.

3. You have a distinct advantage, people to expect to pay more at the
   mall.

4. Learn how to sell repairs.

5. If you sell only 3 out of 10 product and that makes you money AND
   you sell 8 out of ten a repair, go for 3 out of ten but increase
   your prices. Hey, that’s what you’re doing in product sales. Want to
   sell 8 out of 10 product? Easy: Reduce your prices in the showcase by
   35%. Would you? Probably not. The thing is your repairs are already
   discounted by 35%. Bring them up to compete (there’s that word
   again) with the gross profit margin percentages of product sales.

    Basically, your continuing thesis, suggesting that
contemporary jewellers are not charging enough, 

I know they aren’t charging enough. I visit store, I ask questions.
You know why I know they aren’t charging enough? Because they aren’t
getting KEYSTONE on repairs. Simple finding. Add up the jewelers
wages, their matching taxes, all findings, small melee, gold, solder,
tools, mountings, gold casting grain, buffs, etc that it takes to do
the shops business. If YOU’RE a jeweler and owner and work 50% at the
bench, add 50% of your pay in as jewelers wages as well. That’s your
cost. Now compare that to what you charged. It HAS TO be double. If
not you’re wasting your time.

    flies in the face of the fact that we  are now in another
world in which labor has diminished value. 

Absolutely wrong. Professionals make really good money. AVERAGE car
mechanic makes $45,000 to $150,000 per year per the 2000 February
issue of Car & Driver magazine.

Lasik Eye surgery in Atlanta goes for $750 to $2500 per eye. No
matter who does it, it takes 1 hour. You pal around with lowly paid
bench people. There’s LOTS of people making awesome money from the
bench and they make it because they charge CORRECTLY for their time
and material (see paragraph E). What’s the correct labor rate for
you to charge? You should charge in labor FOUR TIMES what you want to
make for yourself. Happy with $37,500? Fine, charge low labor rates.
Want to make $75,000? You’ll have to DOUBLE your rate! Across the
USA EVERYONE tells me else than 5% of customers walk when you raise
your labor rates.

    Now it is time to realize that we must accept the fact that we
cannot charge nearly as much for labor intensive endeavours
because a global economy has devalued labor. 

Ron, you should travel more. I was in Dallas TX on 9/11 and watched
the towers come down on TV. I had to stay 5 days until I could rent
a car and drive to Atlanta. Anyone stuck out of town was affected, as
was most with the economy and scares. The economy stinks and my
business was affected during that fall. But after that it all came
back for me because I worked my business. I travel and there are
LOTS of cities across the USA that have people buying products AND
services. There are TONS of people who tell me “If it wasn’t for my
shop, we’d close up.” People will pay for good work. Besides you’re
looking at wrong numbers. If you get $15 to size a ring and you go
to $20, that’s a 25% increase in sales! But we’re talking aboutfive
bucks. It adds up. Go to K-MART, WAL-MART and stand it line and look
both ways. There’s PLENTY of impulse items at $29.95 for crying out
loud. The difference I see in the successful stores have to do with
advertising.

I never said rape the customer I said charge correctly. Why will
people pay for correctly prices repairs? BECAUSE THEY TRUST YOU!

Every single person I have convinced to raise their prices has said
their sales increased. That’s a simple number. If you’re afraid
business will drop off (I understand), I’m here to tell you it won’t
happen.

You’ll see lots of people making lots of money from the bench,
people with lots of competition. Hey Atlanta has 4.5 million people.
Think there’s no competition there? I used my book there for pricing.
It works in big towns and little towns. I could go on and on but you
won’t believe it until you try it. Don’t count the people who leave.
Count the people who leave the work. You’re looking at a 90% success
ratio.

Respectfully
David Geller

[Dennis_Walker]

Ask a jeweler in Thailand, Indonesia, India or numerous other
emerging market economies if they feel that the “global economy” has
"devalued" labor. There are severe and unfair disequilibria in wages
and standards of living around our globe. There seems to be a rather
insensitive disregard for the people that make up this global
community, talk as if they were just units of labor and not human
beings. Does anyone think that the jeweler in Thailand that makes
$700 a month or Indonesia $350 a month and is as skilled as any in
the world would share the views expressed in this economic debate? I
wonder if that is why there is so much turmoil in the world these
days.

Anyway, here is my 2 cents on business economics. You must be able
to achieve a reasonable rate of return on your investment using bank
interest rates as measure of the risk-free rate of return. What you
want also depends on your objective, target rate of return and target
rate of growth. It would be good to cover your overhead and makes
some $ on top of that to allow for savings, reinvestment, growth and
to do some fun things in life. It’s a good idea to factor your labor
into the equation as it certainly has an economic value and it is a
cost. The Cost Value of the piece should include labor at a standard
rate that is competitive with the market and your materials cost.
There are some nice computer programs, MS Access based, that can
calculate your costs based on a Bill of Materials (BOM) for each
style you make. Then you can figure out what markup is reasonable
based on that cost. I have seen a 1.8 to 2.5 to 3.0 times mark up
to wholesale depending on the piece. How unique, complicated, rare
etc it is and the material used. Also depends on if you got a great
deal on the stone for example. Maybe you got lucky and bought a Burma
ruby for $50/carat and its wholesale market value in the gem trade is
$150/carat. How do you cost your piece? With the gem cost calculated
based on your actual cost or the wholesale market value of the stone?
I don’t think it is ruthless to ask market prices for things when
you get a good deal on some material. You could cost the stone at
$100/carat then multiply your total cost in your BOM by your profit
factor and that would be a good deal for you and the customer. You
get some extra profit for “buying smart” and your customer gets some
savings since the stone is cost out under market of $150.

I think one of the critical success factors in the viability of a
business (workshop, factory or retail) is inventory management and
maintaining a good turnover ratio. A standard inventory turnover
rate that would be considered good is (in my opinion) around 3 times
per year, that means your inventory sells 3 times in one year. If it
gets above that then your doing something pretty amazing and maybe
illegal. It’s better to have things moving. Dead stock is a killer
… so to speak {:o) If your feeling is that a piece won’t move,
then discount it and get the cash back out of it so you can invest it
in something that will turnover faster. What would you rather have,
a piece of jewelry in your case or cash flowing through the business
to cover the costs? I have sold things at cost in the past to get
the cash out so that I could invest it in something that flew out the
door faster. If there is some emotional connection to the piece,
that’s a different matter and economics can’t really factor in
behavior that is not rational from an economic point of view. So, if
you are too emotionally attached to your work, it can be a high
economic/business risk.

All factors must be looked at as one whole and analyzed deeply. What
is your available capital to work with (how much money do you have
to invest in stock), what is your overhead (monthly expenses) and
what cash flow do you need to cover that. You must have enough
cashflow from turnover to cover the overhead and replace your stock.
And what is your objective? That is an individual matter. Not
everyone is in it for just a profit. Other people have modest needs
and some have high standards of living. Depends on what you want.
And then there is the dreaded economic cycle, the down time. I won’t
get into politics and our the US administration’s foreign and
domestic policies and how they affect our businesses, but those down
cycles are hard to manage. Your cost structure has to be able to
support the business in the down cycles, don’t expand beyond your
ability to survive in rough times. In 2000, the US finished a 10 year
record breaking economic expansion, I hope we don’t have a 10 year
record breaking contraction to match. I’m hoping that the
fundamentals of the economy are generally strong and that consumer
psychology is just in a temporary rut fueled by all of this
negativism about a potential war. If we can get past this and cheer
up a little, maybe spending will pick up some.

I would love to get more into the discussion on competition and
innovation, but I have to work, so I’ll save that one for later.

Sorry for the windy response, but everything seems to be related to
everything in one way or another, so I tend to meander a bit … and
I hope there was something useful somewhere in there.

Dennis Walker

[Jim_Reitze]

I’d like to make an observation from my experience with pricing. I
am based in a retail store, though I am technically independent of
that store, and I produce my own line of pieces. The line includes
charms, wedding bands and some other pieces. My products are
produced in small numbers and are labor intensive in terms of final
assembly and finishing. The store also sells charms that are
purchased from sales reps by weight, not by the piece. They are
clearly of lower quality finish, but the metals are the same. I
simply can’t compete with those pieces when they are selling for 1/2
or less of the price I must charge to be profitable. The problem
here, though, (at least in my eyes) is audience. The store I work
from draws people who look for low prices above all, for the most
part. The better finish, unique designs and the locally handcrafted
provenance means nothing to most of these people.

Now, 2 blocks down the street, there are many shops that draw the
tourist crowd, and tourism around here is nearly year round. There
is also a large number of seasonal residents and retirees in the
area. Many of these folks value the very things that are meaningless
to the others. As we grow the production part of our business (the
rest is repair work), we must find ways to tap into the market that
will pay the price. If we can’t successfully tap those markets, we
will stop producing rather than go broke selling for less than costs.
I love making jewelry, but not to the point that I will starve my
family for the honor.

Unfortunately, I don’t have the option some in the forum seem to
have of ‘going back to the real world’ for employment, while keeping
the small studio going on the home front. This is the only ‘real
job’ I have ever had, so if I find I can no longer make it after 25
years in the jewelry trade, I will have to start over in something
entirely new. Jim in the mountains of NC, where the ski season is
finally ending so I can have my life back.

[Dreamgate9]

Ron, While I do agree with the argument that we independent
goldsmith/jewelers have to be competitive, I also agree with David’s
assertion that we are undervaluing our work. What you say about the
big giant stores may be true: their overhead is monstrous compared
to mine, and they can purchase at volume discounts, with better
terms, receive co-op advertising from their suppliers, and go after
a lion’s share of the market. So, why were my profits up 47% last
year?

I raised my prices. I looked at what my competition had to offer,
and offered my customers an alternative. I create fairly labor
intensive pieces, mostly fabricated in 18k and platinum. I have
knowledgeable salespeople, who actually listen to what the customer
wants. I take extra time working with each customer as an individual
who is making a very important purchase. Our store looks like an art
gallery, but we dress and act very casual and relaxed. I will treat
a customer to lunch at a fine restaurant if they have to wait. They
are my friends, after all. I use only the finest ring boxes I can
find, and wrap their purchases not in paper, but in silk. All this
is expensive, but not as high as the expenses that my big
competitors have.

Let my competition build “mega-stores” with row after row of the
same old things. My stock turns 4-5 times a year, so it is always
fresh and exciting. I can adjust with the seasons, and with the
economy, within a few weeks. They can’t. Most importantly, I can
give my customers what they want. An experience. And respect as an
individual, not as a sales unit.

Being competitive, I have learned, is RARELY about price. It is the
total value of the experience that you receive. I bought David
Geller’s repair book, and learned that I was truly undercharging for
a lot of the smaller jobs that we do. I raised my prices, and not
one person objected (I also learned that my competitors are also
using David’s book now). My markup is now (in general) 5X cost, if
cost is materials and labor. I may not have high rent, but I do
throw in a lot of “extras” and I have to charge for that. The
amazing thing is that, unlike the cost of advertising and rent,
customers can SEE that they are receiving more for their money.

I agree with you: milking every last cent out of the customer does
not insure profitability, and your assessment that modern customers
are increasingly sensitive to getting a “fair deal” is right on the
mark. Just remember that your knowledge and skill are what really
make you competitive. “An apple is an apple, but a sweeter apple is
worth 10 cents more (and a sweet organic apple is worth the most)!”

Doug Zaruba

[Watchman]

We have been competing ourselves into holes. A huge number of us
go out of business because we are so worried about losing a little
business that we will do a losing business in the hope that we can
somehow put the other guy aout of business before we go. 

This brings to mind a lovely saying that a local market trader here
(‘Potty’ Edwards) used to be heard shouting his wares with in the
1950s…

“We make a loss on every item - its only the number we sell that
makes it worthwhile…”

Best wishes,
Ian
Ian W. Wright
Sheffield, UK

[spirersomes]

Since we seem to be discussing David Geller’s regular postings here,
I have some thoughts that I would like to pass on. Some of these I
have discussed with David off list and we seem to have respectfully
disagreed on them, however since he is regularly posting threads
about his methods, I would like to offer some of my own opinions.

First, I would like to say that his theories on pricing repairs are,
generally speaking, right on the money. We, as jewelers, tend to
consistently under value our talents and the value of our
experience. This, of course, is assuming that you ARE actually a
talented jewelry repair person. Just because you call yourself a
jeweler doesn’t make you an expert in all areas. You need to take
this into consideration when pricing out your work. Someone who just
started on the bench cannot ask the big bucks that someone with years
of experience can. Competition should only crop up as a problem if
your work is subpar.

I do, however, take issue with David’s one size fits all inventory
formulas. While I fully appreciate and understand that a larger than
necessary inventory can be a drag on profits there are times when it
is not only necessary, but critical, to the growth of an operation,
that your inventory is larger than his formulas allow. This, I
think, is particularly true for those of us on list who are actually
making our own jewelry. I think it is less so for those who just buy
and resell jewelry.

Let’s take the following example (admittedly based on some of my own
experiences). Let’s say that you have just started your own business
and your average price point is about $100. Your sales are doing
well, your inventory turn is high, you’re working 80 hours a week to
make all that jewelry and to keep the business running. But you read
the writing on the wall and realize that if you ONLY produce $100
pieces you will always be working like this. So you decide that you
want to push your average price point up to $1000. What do you do?
You can’t just throw out all of your old inventory, replace it all
with new, more expensive, goods and hope that everything will sell.
You have to begin to add inventory that will boost the price point.
You have to bring your customers up the ladder with you, or over a
period of time, develop new ones that will replace the lower end
ones. Unfortunately the REALITY of the marketplace is that until
the bulk of your merchandise is in the new price point range, the
customers will not REGULARLY purchase the higher end pieces from you.
While some customers may be able to walk into a store filled with
$100 items and place an order for a $1000 piece, the bulk of them
will want to see similarly priced work in the store before making a
commitment like that to you.

So here’s the dilemma. If you follow the inventory turn formula,
you will be stuck in the same marketplace you start with as you won’t
be able to turn the new, more expensive merchandise fast enough (as a
matter of fact, according to David’s formula you will be forced to
continually mark down the expensive pieces until they do sell fast
enough, thereby ruining your goal of boosting the price point). I
truly believe that the inventory formulas David recommends will only
work in a business that has already grown into what it wants to be.
For you newbies, I think you are going to have to bite the bullet and
live inventory poor for awhile until you can get yourselves up to
where you want to be. Once you get there, then go use the formula.

Daniel R. Spirer, GG
Spirer Somes Jewelers
1794 Massachusetts Ave
Cambridge, MA 02140
617-491-6000
@spirersomes
www.spirersomes.com

[David_L_Huffman1]

Hello David, Ron, and others; I have to disagree with the theory
that repairs are exclusively trust based. I service 5 local
retailers, and I regularly get calls for estimates coming from
different retaiilers that are discribing the same job. This tells me
the customer is shopping. I charge them all the same rates, so it’s
thier chosen margins that are at issue. There is also one local
retailer who also works at the bench. He has gotten a reputation for
gouging customers as well as doing slip-shod work (we should be
finishing him off shortly). The other trade jeweler in these parts,
also known for slow turnarounds and difficult business dealings is
getting ready to sell out. Competition is a reality, especially if
your competitor is capable and hungry. Of course, it’s foolish to
blindly follow the local prices. You’ve got to put price in the
context of the entire value of the transaction. Service must be
prompt, of reliable quality, and attractively priced. Not cheap:
attractive. Maybe a little more, but only do the degree that you can
demonstrate the other qualities in the transaction. Of course, you
can embarass someone into paying too much, but they won’t be back. I
have had auto mechanics put the wheels back on and take the car down
from the lift when I didn’t like their estimate, but I’m maybe not so
typical. And I NEVER go back if I find out I paid too much.

Now, once you’re established as the “quality” jeweler, should you
raise your prices? Of course you can, but now it’s a moral question.
Is your overhead more now? Is the other guy losing money with his
prices? Will your customers tolerate it? so now the question is
"how much?". I came from a very small town. When one of the two
local groceries burned down, the other guy raised his prices. People
are still talking bitterly about that 20 years after it happened.
Now both the groceries are gone, and everyone drives to the nearby
"big city" to shop at the big box chain store grocery. Now briefly
about the issue of wages. Of course, free trade has not lowered the
intrinsic value of skilled labor, it has only increased the
availability of skilled labor, thereby competitively driving down
wages. It was supposed to raise all boats eventually, but it’s also
part of a “trickle down” economic theory, and we know how well those
work. So if my accounts can get cheaper labor elsewhere, why do they
prefer me? Back to that whole package thing again. I’m close, I’m
accessible, my work is consistant in quality, and when you add the
savings on shipping and insurance, my prices become “attractive”.
Some of my “qualities” are attractive enough that several out of
state retailers spend on shipping and insurance to get what I have
to offer. Will I raise my prices? I’d rather hire more people and
make up it in volume. If I can provide more “qualities” like faster
turn around, more types of services, etc., then the package will
remain “attractive” even if I raise my prices. But you can be sure I
will be judicious about it. That other trade jeweler who is rumored
to be ready to sell? He has another problem that’s hurting him. He
doesn’t want to pay good wages, so he doesn’t have enough skilled
help. I wish I had the capital to buy him out before somebody smart
does.

David L. Huffman
David L. Huffman Studios, Inc.

[Lori_Bugaj]

My approach to pricing and competition comes more from a
business/marketing spin. What you charge has to balance the value
perceived by the customer of what you are offering (services,
products, whatever).

If you think what you offer is exactly the same as someone else,
you’re not differentiating your work/product/service from others
enough. Greater differentiation + higher perceived value = more $$$
Lori Bugaj One-Eyed Collie Jewelry Design

[Rocklady]

Hello Ron, et al I know I have mentioned it before, but it does bear
repeating. When I first started selling my jewellery (and bear in
mind I sell as an artist at a Farmers Market) I had many compliments
on the style and quality of my pieces but no one bought. After many
weeks of this I finally got the courage to ask some of the regulars
that I was finally recognizing, why they did not buy. They informed
me that thought I did beautiful work; it could not be real silver as
my prices were to low. It took me 2 years of playing with my prices
until my jewellery started to sell, and in the end I had about
tripled my original prices.

3 Years ago I started all over again with a new partner and name. I
also have again raised my prices after having checked out many of the
jewellery made by various other Orchid members (what great fun, and
great artists out there) and having been teaching and interacting
with the artists at the Alberta College of Art here in Calgary. Now
when I question various customers about what they like about my
jewellery (I now do this periodically when I feel the timing and
customer are right) the answer I get the most is that most of the
people I sell to figure that quality costs a little more.

What they like about my products includes: uniqueness; the fact that
most of my better pieces have a story; that I am familiar with the
stones I use; that I actually collect and cut some of my own stones;
that I am selling the product I make, that is they get to meet and
interact with me personally; that I actually teach jewellery making
and work with kids; that I even answer children’s’ questions about
the stones as if they were real people; that I don’t discount or put
my jewellery on sale for the odd cheapster; my prices are clearly
marked; I stand behind my product.

I also sell rocks and crystals. I have had many comments about the
fact that I do not charge different prices to different people due to
belief (the new age people) or race. I was shocked to find that some
people apparently charged many of the native people here more for
rocks and crystals. I also have taken the time to learn a little at
least, about the many kinds of customers I have, for example: I keep
a list of Sanskrit names of some of my stones; I always have a book
or two on the healing properties of stones; I have learned a little
of the culture of my Chinese, Hindu, Native, and New Age customers.

It actually was my husband that clued me into the fact that all
these extra things I learn that help me sell as well as all courses
to upgrade my skill/knowledge, are reasons to charge more. It doesn’t
matter whether or not I actually have a certificate or degree or not.
In fact a certificate or degree would probably allow me to charge
more.

The funniest thing is, some of my customers tell me my prices are
still too good to be true:-). (shrug)

Karen Bahr “the Rocklady” (@Rocklady) K.I.S. Creations
May your gems always sparkle.

[MillsGem]

All, Having read all of today’s posts regarding Geller’s pricing
policies, I would like to make some observations and comments that
expand on some of the comments that I have made.

One of my contentions is that today’s customers are better informed,
more price sensitive and are leary of getting ripped in the
marketplace. They are also aware of the competition that has come
into the market from abroad. They are nowhere near as prone to pay
high marhp prices as they once were. They are also aware that the
foreign competition is constantly improving its workmanship. I am
old enough to recall how the output of goods emanating from Japan
was held in great disdain since it was very inferior in quality and
workmanship. Nowadays the Japanese are the standard bearers of
quality ! In a more recent context, I remeber how the Indians were
held in disdain because of ther low quality of their workmanhip and
materials. Today they show constant upgrading of their product. I
also recall how just a couple of decades ago Sri Lankan cutting was
to be avoided at all costs because of the terrible cutting.

Brazilian cutting has also greatly improved, although they still
slip in some badly bellied stones !

My point is that we have a convergence of forces heading on a
collision course. On the one hand foreign competition is
increasingly eroding market while, on the other hand, we are
deliberately becoming LESS competitive. It is just a matter of time
before most of our repair work will be shunted off to maquilla
operations along the border of the United States. These operations
are usually operated by Americans who introduce modern shipping
methods, tightly controlled stock and high quality workmanship.

Heretofore, we have maintained a competitive stance because we
availed ourselves of the latest in technology. We no longer have
that advantage. Our technology is shipped all over the world.
Furthermore, because high tech is capital intensive, you will find
that foreign governments step into the picture and finance the
import of said technology. As a sidenote, you may have noticed how
the Brazilian government subsidizes it’s exporters by giving them
free transportation to the major shows in the 'States. And, as if
this were not enough, our own government subsidizes the export
efforts of our foreign competitors.

David’s effort to encourage higher prices is certainly appropriate
for the bigger operators. The overhead of the larger jewelry
entities are astronomical. Anybody who has to hire employees is also
hiring non productive overhead ( because of all the perqs. that go
with modern employment. )

On another plane, let’s not overlook the economic realities of our
times.We have growing unemployment and wages are essentially
stagnant.The stock market is on it’s ass and the various state
governments are flirting with bankruptcy. Real estate costs are, on
the other hand, still going through the ceiling. In our area only 21
% of the families can afford to buy a home…the median price
of a home is $390,000 !

In light of the foregoing, are you going to tell me that people are
not going to care about what they have to pay to repair their
jewelry or buy their baubles. Nonsense !

I wholeheartedly agree with the need for realistically setting
prices. Cost/profit ratios are essential to the survival of any
business. But, I also observe that many businesses don’t make any
real effort to reduce overhead. I am a firm believer in KISS…keep
it simple stupid ! The greatest opportunity today in the jewelry
business is for the small operator who does not have to hire
employees, is located in a small town, who mixes within the
community and who stays abreast of skills and technology. I charge
less because I keep my overhead low, low, low ! Today, less is more
because more have less…! Ron at Mills Gem, Los Osos, CA.

[bethwicker]

On the pricing front, I have to agree that pricing things too low,
even when you are more than covering cost, inhibits sales. I’m
getting ready to re-price all my stock, as I think I have most of it
too low, and people DO think if it is low then it must not be
"real". I actually had one customer ask me at the show I did last
weekend “Do you have any real stones?”. I was floored, and assured
her that ALL my stones are real!!!

Guess I really have my prices too low!

Beth in SC (not to be confused with the other Beth who has much more
experience than I do!)