"It cost you money to drive to the shops, mail letters, make
phone calls, have lights, repair equipment, buy new equipment etc.
You need to make sure your prices reflect this expense."
Has anyone been able to break down, or figured how to determine, the
cost of these items?
Alan & Jeanette, your quote sounds like a statement that I made a
week or so back. When I started my store in 1994, I started it with
the though of “get the revenue coming in then worry about controlling
expenses”. I had been exposed to this thought process in my previous
corporate life as a service cost estimator and I assumed it would
apply to operating a store as well. It took me a couple of years to
find that you need to worry about expenses from the get go. What I
found is there an off the shelf answer for these cost.
Your expenses will be unique to you, so you alone can determine what
the right mark-up will be to cover them. If you are just starting
business, talk to anyone that is already in business, jewelry or not,
and see if they can give you some that may apply to you
situation. Rent , insurance, and utilities are somewhat common. If
you have been in business for a year or more, you should already have
the you need, if you have been keeping good books.
This group of expenses that you ask about is referred to as “Fixed
Cost” This means that it doesn’t change much if you sell $1000 or
$100,000 worth of goods. It is easier to cover it your sales are on
the high end, difficult to cover if you are on the low end.
Lets take an example. The last full year that I had my store open,
my “fixed cost” were around $45,000. That included rent, insurance,
electricity, phones, alarm system, cleaning, repairs, office cost,
postage, bank charges, loan interest, etc., Etc. Etc.
Now lets take a look at your “variable cost”. These are your job and
sales related cost. If you don’t sell anything, you don’t accumulate
any cost. This would include the cost of your supplies such as
solder, gas, gold, stones, etc.
Ok now lets do the math. I need a “profit” on my variable cost to
cover my “fixed cost”. I design and manufacture a piece of jewelry.
The cost of the gold, the stones I used, etc cost me $350.00. It
took me about three hours to put this piece together. I put it up
for sale for say $1000, but I know that I will need to be able to
discount it for a special customer or clear it out at a real price of
$700. I’m going to make $350 profit on this piece. Not bad, $50.00
an hour for my time and investment. I sell one of these every other
day. I am doing well. AM I?? Well if I can sell three of these a
day I am. If I can sell one every other day I am not. I will need
yearly sales of $90,000 ( this is $300 per day for 6 days a week and
50 weeks a year) just to cover my “fixed expensed” at a Keystone
markup. Oh yes, I haven’t paid for food and home for me yet, so at
$90K sales, I’m going broke fast.
So what do you need to be well. Lets assume that in your area, if
you were working for a wage, you could have a house, a car, and food
on the table for say $40,000 a year. By the way, if you are
employed, you get vacation time, medical benefits, unemployment
insurance, and your employer pays into your FICA . So when you add
in all of these “givens” for an employee, your actual profit needs
from your business is around $55,000 a year to have the same real
salary as an employee. (please note that these are not actual
numbers, but an example. you will need to determine what the "real"
numbers are, but they are close)
Now we are at the point of needing sales of $90K to cover expensed,
and an additional $110K (Keystone sales) to cover a living wage for
one. Your sales need to be around $200K per year to keep healthy.
As soon as you add employees, bigger store, Etc, up goes the break
even point again. Oh yes, do you want to grow the store, add new
inventory, change the show cases?? Some body has to pay for that
too, and you are looking at that somebody in the mirror every morning
when you get ready to go to work. More sales revenue please. These
are the things you need to consider when calculating your cost.
One more point. Just remember that $100 in the cash register isn’t
$100 in your pocket. The good Governor wants his sales tax and he
will not be put off. The President wants his income tax as well as
the self employed tax and FICA taxes and he too will not be put off.
These need to be subtracted from your “sales”.
As I said before, your cost will be unique to you. If you are just
starting out, put together as comprehensive a list as possible of
your estimated cost and then add an additional 20 to25% to cover
surprises. And there will be surprises
What I am pointing out here is not a bleak picture of our business.
It is a fact in any business. If you don’t acknowledge these facts,
you will go broke and go out of business. If you understand them,
you can manage your expenditures and cost, stay in business, and in
good time thrive. Knowledge is power. A business isn’t a lottery.
Luck plays only a little part in it’s success. Oh yes, I closed my
store after five years. I didn’t go broke, but I didn’t thrive
either. It was a lesson well learned I think, and a most enjoyable
experience. One I would do again if I were younger.
An interesting side note. You can take classes in Gemology, Jewelry
Sales, Goldsmithing, etc. All of the technical aspects of the trade
but none of the major schools that I know of teach the business
side. Humm, an opportunity here??? Paul??