I am a small artisan jeweler, selling directly to the end user
(the person who will wear my jewelry). After I calculate my
wholesale price, why do I need to mark it up 2x in order to retail
it?
You don’t. You can sell your work for whatever final selling price
you feel is fair to both you and your customers. Wholesale and retail
are marketing levels, not cast-in-stone pricing levels. However,
consider: If you really are wholesaling, then you save all the time
spent working with customers, as well as attracting customers. So
with that less time spent, your costs are lower. On the other hand,
if your working directly with end users, are you still selling fully
production work or are you customizing things, which makes them one
of a kind and more costly than a wholesale line. So consider just
what you’re really doing. It may not be full retail, but it doesn’t
sound like it’s totally wholesale pricing either, that reflects your
cost. In the end, you can price however you wish, so long as you make
your desired profit margin and can find enough customers. If you’re
not selling to retailers, then your price is the only one, and it’s
simply your price. Don’t worry about the terms retail or wholesale.
But keep in mind, too, that if you CAN get the equivalent of full
retail price, and you’ve got adequate customers at that level, why
would you charge less? Customers say they love a bargain, but in the
end, they value an item based on what they paid, not on what they
might have paid elsewhere. Selling low only makes your work look
cheaper, while making you work harder for the same money. If selling
cheaper gets you more customers, though, then there is some point
where there is a balance between low price and more customers, and
high price and fewer customers. Finding that price point is the whole
point.
This question came up when my husband asked about how I price my
work. I explained it to him: I calculate the wholesale price, then
double it for retail. His jaw dropped. Having been in the computer,
stereo, and other manufacturing industries for years, he was
shocked that the profit margin was so astronomical. No other
industry that he's aware of DOUBLES their landed cost. So why do
jewelry stores & galleries?
He’s missing a whole lot of other industries. Try clothing,
furnature, anything in a department store like Macy’s or almost any
business in a shopping mall, and most other better retail stores. The
percentage of stores or types of industries that charge less than
double is considerably in the minority. It’s pretty simple to tell.
If the store is always busy with people lined waiting at the cash
registers most of the time, then their total volume will be higher,
and turnover time on merchandise may be fairly quick. Many items
might sell in weeks or even (grocery stores) days, rather than a
being in stock for a year or more, so their profit margin, figured
annually on that item, is larger than a store (like many jewelry
stores) that may have items, often costly ones, that turn only once
a year or less. And in the case of jewelry, not only is the
merchandise costly, but it’s costlier to buy and keep in inventory,
to insure, and to sell, since most jewelry stores need to spend some
effort and money on an image of prestige and quality, etc. Then there
is advertising and all the other costs in running a good business.
The average jewelry store will have lots tied up in merchandise, and
several employees who may spend significant time simply waiting for
customers or sales, even if they keep busy. Some stores may have to
pay their bills on only a few sales per day, at least in comparison
to those big box stores or highly competative marketers who move a
lot of merchanise fast.
The simple answer for your husband, though is that stores that
charge a higher profit margin are not doing it out of blatant greed.
They’re charging what they do simply because they must, in order to
stay in the black and make an acceptable rate of return on their
investment (time and money). Even with a three x markup, many jewelry
stores operate on single digit profit margins by the time the books
are closed at the end of the year. But again, I stress, if he thinks
this markup is unusual, he’s deeply misled. It’s not just the norm
for jewelers. It’s the norm, 2x or 3x markups for most retail sales.
Even many internet marketers are not charging much less, despite the
impression they may wish to give. And some classes of especially
inexpensive merchandise can sell for much higher markups. Go into a
Target store and look at the rack of costume jewelry earrings selling
for five bucks a pair. Likely, they cost fifty cents each, but the
retailer had to buy a whole rack full at a time. Some won’t sell,
others will disappear into pockets, and a square foot of floor space
has to earn it’s keep whether it’s selling thousand dollar stereos or
five buck baubles. Highly competative markets with merchandise that
sells quickly, at stores like best buy, or shops like walmart of
costco or your local grocery store, can charge less simply because
they’re making the profit they need with a lower markup due to the
higher volume of sales they can generate.
So let's ask the question: what if I decide to wholesale to a
gallery? They will want to take the price I give them and double
it, at least, correct? Then the gallery owner will want to make
sure that my jewelry isn't being sold elsewhere for less -- for
example, on my own websites. Well, I can't compete with that. If
the retailer wants to mark up my work by 2x or even 3x, great!
(They may not be able to sell it for that much, of course.) But
does that mean *I* have to then publish their price on all my
websites so that we're not competing with each other?
Usually, yes. The moment you’re using the services of a gallery to
present your work, you’re whole pricing structure has to accomodate
that fact. You still need to charge enough to the gallery so your
percentage, whatever it is, is what you need. That has not changed.
But now you’ve got a business promoting you, advertising your work,
showing your work, etc. In essence, you’ve got a costly employee, and
the price the work sells for has to pay for that employee as well as
make the needed return on that investment to make it worthwhile. In
this case, that return is to the gallery.
Now, the moment you’ve got someone else selling your work at their
retail price, if you then sell the same stuff on your own directly to
customers, you’re cutting the poor retailer off at the knees. They
are quite justified i asking that you not undercut them. If they’re
going to sell your work, why would they do so if customers can go
direct? This is the same with wholesale/retail arrangements in every
industry. If you want a couch, you go to a furniture store. If
you’re lucky, you might find one on sale, but you still have to buy
it at the retailer. You can’t just call the factory and ask them to
ship you one at the wholesale price. As to what price you publish on
your web site, you’ll have to work that out with your gallery. If
you’ve one gallery, then often their price is the easiest. if you’ve
several, then perhaps an average if they differ. Some galleries will
even require that if you have private sales, such as through your web
site, that you then give them a percentage of that sale. Perhaps a
lower percentage, but even so, you may owe them something. After all,
perhaps your customer to the web site saw the work first at their
store. Maybe their sales staff spent time with them. Even if this
didn’t happen, they may feel entitled to a margin of that sort. Some
artist handle this simply by having all sales, even those originating
on their web site, run through their gallery as their representative.
This has advantages. The gallery handles the customer hassles, charge
cards, banking, etc etc. And it keeps the whole relationship between
you and your representative gallery uniform. These issues are some of
those stickier issues you have to consider and work out with your
gallery if you choose to be represented by one, before you sign the
contract. If they don’t bring it up, you should, just so everyone
knows what the expectations are before hand.
Perhaps a solution is to take my name off the work I wholesale to
a gallery, as painful as that sounds.
Nonsense. Your name and signature are an important part of what the
gallery is selling. This is the same everywhere. You buy a brand x
item, because it’s got a reputation of being better than brand y or
z. That brand is important and meaningful to you and the selling
store. But you still buy it from that store, not the manufacturer.
The bottom line is you simply have to consider whether your markeing
model is wholesale or retail/direct. The way you establish your price
may be similar. But the price to the end customer has to be figured
differently. Don’t try to do it both ways at the same time, at least
not under the same “brand” name. If you sell good work through a
gallery, and another totally different line of work through your web
site under a different name, then likely, that can work. But again,
work it out with your gallery before hand.
Peter Rowe
