Priceless Pearl

Starting and Running a Jewelery Business Part 9

Starting and Running a Jewelry Buisness Part 8

• A "Basic Rule".
• Materials costs – base & secondary.
• Design & Creation time
• value of Name recognition
• Intrinsic and perceived value
• General business costs.
  
  Wholesale pricing
  
  Let's look again at some of the questions I listed in part 1 of this series:
  
  "My co-workers love the jewelry pieces I make for myself, and they want to buy them. How much should I charge?"
  I hope by now you understand that your work has value. It is relatively common for women to admire the beautiful jewelry that another woman is wearing. Sometimes when they find out you are the creator, they ask to purchase your creation. In doing so, they are they are confirming the value of your work. Since they are confirming your work has value, you, too, should respect yourself & your work, and charge accordingly.
  
  "How do I figure my costs and selling prices for my jewelry?"
  Go back to "The Basic Rule". YOUR MATERIAL COSTS X 3, + YOUR DESIGN & CREATION TIME, + "NAME RECOGNITION", + INTRINSIC VALUE.
  
  The Basic Rule is only a basic guide, a starting point, to help you develop your own pricing schedule. One in which you can recover all of your costs, be paid what you are worth, and make a profit.
  
  "A woman told me that she would pay me my costs and she will wear my jewelry for people to see and I'll get a lot of business. Is this how I should start my business?"
  First, she is telling you that your work is special and valuable.
  
  Second, unless she is a great sales person with a large social circle of friends with the money to buy your creations, you'll end up with nothing and she will have your wonderful creation without paying for it.
  
  "What jewelry supplies can I buy (with a state resale number) without paying the sales tax (California)?"
  You may purchase "for resale" the following items, only: 1) everything that will be included in the final product when it is sold; 2) packaging for your product when it is sold and delivered to your client.
  
  You must pay sales tax on everything else you purchase that is not physically included in your final product when you sell it. The state requires you to account for everything you purchase "for resale", and it expects you to pay the unpaid taxes on everything you do not sell.
  
  The state requires you to pay, to them, the sales tax for all items you sell. They don't care who pays the tax (your client or you), as long as they receive their money. I suggest you collect the tax from your client when you make the sale.
  
  "My hairdresser has offered to sell my jewelry in her salon. She will display them and pay me after she sells them. How much do I charge?, Do I need a written agreement? Who is responsible for the sales tax? Help!"
  This is called a "consignment" sale. Because she is not purchasing your creations, outright, and you will have to wait for your money, your discount, to her, should be less than for a regular wholesale sale.
  
  It is very important to have a written contract between you and the consignee. It should cover each person's responsibility, when you will get paid, how and when you will recover all unsold merchandise, physical responsibility, etc. You can find sample Consignment forms in books on crafting as a business. (See book references.)
  
  The Consignee should be responsible for the collection, and paying to the state, local sales taxes.
  
  "How can I make sales and charge the prices you tell me to charge?"
  First, I'm not telling you how much to charge. I am giving you information, and the tools to develop your own pricing schedule. One in which you will cover all of your expenses, receive a reasonable compensation for your creativity and craftsmanship, and make a profit.
  
  Don't take the attitude, "I'm not worthy." If you are creative and a fine craftsperson you are every much as worthy as Paloma Picasso (Tiffany & Co.).
  
  Produce fine quality, creative and unique jewelry.
  
  Be creative and do not create jewelry that resembles mass produced, cheap and/or imported, jewelry.
  
  With your wonderful work, you should aim high. Set your "Client Level" and "Price Point" high, and you will take yourself out of the arena of the low talent and low priced "designers". Remember, "Heavy Weight" boxers never have to worry about "Bantam Weights." Whether it's beads or boxing, or music, "want-to-bees" with no talent will always be in the background. So always keep yourself in the front
   

Starting and Running a Jewelry Buisness Part 7

Before I go any further, I just want to thank all of the people who sent me Emails showing your appreciation of this series, and the information we are passing on to you.

I have received many questions about pricing when you make wholesale sales to resellers. This actually fits right in with my next segment.

WHOLESALE PRICING.

First, and foremost, you must compute (using information gleaned from the previous parts of this series) your lowest reasonable selling price. That wholesale price must include: 1) All of your “true materials costs”; 2) Your design and labor costs; 3) A portion of your general business expenses; 4) Any business expenses, specific to this sale; and 5) A REASONABLE PROFIT!

In figuring a mark up or a discount you use two different processes, and the final prices are don’t match.
MARK UP: This is used when you know the cost (or materials costs) of your product and want to multiply it by an amount that will cover all of the business expenses necessary to the sale of this product, plus a reasonable profit, and a “Fudge Factor” that will allow you to give a discount, if necessary, to make the sale. For example: your cost is $100 and your markup is 2.5 %, so $100 X 2.5% = $250.

MARK DOWN or DISCOUNT: This is used when you need to discount a price, and still make a profit, to: 1) Sell wholesale to a reseller; 2) Make a sale; or discount prices where a profit might not be necessary: 1) Clear out old merchandise to make room for new merchandise; 2) To liquidate stock for invest able or needed cash. For example: your retail price is $300 and you are discounting by 50%, so $300X.50%= $150.

UNEQUAL FIGURES: As I said before, when figuring prices in the Mark Up method and in the Mark Down method, the numbers don’t match. Here are a few examples.
MARK UP                                           MARK DOWN
$100 X 50% mark up = $150               $150 X 50% mark down = $ 75
$100 X 100% mark up = $200             $200 X 100% mark down = $ 0

$100 X 50% mark up = $150               $150 X 33.3% mark down = $ 100
$100 X 100% mark up = $200            $200 X 50% mark down = $ 100

So, as you can see, if you give a discount equal to your mark up, you will lose money! It is very important that you understand this difference and the mathematic principals that are involved.

DISCOUNT SCHEDULE: Many wholesalers use a Discount Schedule. Using this schedule, the wholesaler gives greater discounts as your purchases increase. Here are discount schedules from two of my old suppliers:
Supplier #1: (discount based on each order, only. Does not carry over to future orders)
Minimum purchase with a wholesale discount is $ 200. = 0% discount.
Purchases over $ 200 receive a 30% discount. = 30% discount.
Purchases over $ 500 receive a 30% discount, + a 10% discount. = 37% discount.
Purchases over $ 1,000 receive a 30% discount, + 10%, + 10%. = 43.3% discount
Purchases over $ 3,000 receive a 30% discount, + 10%, + 10%, + 10%. = 49% discount
As you can see, 30%+10%+10%+10% doesn’t equal a 60% discount. In a discount schedule each discount is taken before you take the next discount. Based on 100% (retail price), deduct 30% and you get 70%. Then 70% - 10% = 63%. Then 63% - 10% = 56.7%. Then 56.7% - 10% = 51%.
Supplier #2: (discount based on each order, only. Does not carry over to future orders)
Purchase 1 to 4 identical items = retail price.
Purchase 5 to 24 identical items = 21.4% discount from the retail price.
Purchase 25 or more identical items = 36% discount from the retail price.

Here at HouseofGems.com, we also have a discount schedule. Unlike the previous 2 suppliers, our “Frequent Buyer program” is based on your total cumulative purchases. Each time your total accumulated purchases reach a new plateau your discount grows and it is applied to that purchase, and all future purchases.
Your total accumulated purchases of under $100 = 0% discount
Your total accumulated purchases of $100 to $499 = 5% discount
Your total accumulated purchases of $500 to $999 = 10% discount
Your total accumulated purchases of $1000 to $1999 = 15% discount
Your total accumulated purchases of $2000 or more = 20% discount

These are examples of discount schedules used by two of my previous suppliers and ours, here at HouseofGems.com. You can develop schedules to meet your own needs. These schedules can build sales and weed out phonies. These phonies can be people (with a “resale number”) who claim they are purchasing one or two pieces of your jewelry to sell in their store and that they will make many more purchases in the future. In reality, they have no intention of reselling the jewelry or make future purchases. They just want to buy your jewelry at a reduced price, and not pay you what you are worth.

It is important to understand, your “Retail Price” might be very different from the “Retail Price” your wholesale client puts on your creation. I find that most resellers mark up jewelry 2X, 2.5X, and 3X the prices they paid (aka: keystone, 2.5 keystone, 3 keystone.).

Another consideration necessary to setting your wholesale prices is how soon you will be paid. If you are paid in advance, or on delivery, you can be generous. But if you have to wait 30, 60, or 90 days (or longer) to be paid, your costs go up and you can’t be as generous. These people are using you as their “Free Loan” bank, and, normally, you don’t have a bank’s financial assets.

You invested your money to make the jewelry you sold, but now you have to wait for your money. When you have to wait for your money you: 1) can’t pay your bills; 2) have to pay interest on money you owe; 3) can’t buy new supplies to make more jewelry; 4) can’t invest your money; 5) can’t enjoy your life.

Generally, the wholesale discount on jewelry left on consignment is lower than the discount given to a regular wholesale customer. Not only is the consignment reseller using you as their bank, but, since they have no financial involvement in your jewelry, it is to their advantage to sell the items they paid for, before they sell your consigned jewelry. Personally, I have had to sue to collect money owed me on consigned items that were sold, and to get back all of the unsold items. It is very important that you have a good, signed contract with anyone you consign to. You can find examples of consignment contracts in books on craft sales (I will list some in part 8).