GET PAST "THE FACE"
When you get started, often you begin by selling your pieces to family, friends and co-workers. You might feel that you want to give these folks a price break. DON'T. You're probably already giving them a price break, compared to them buying the same piece in a store.
These people are your initial "word of mouth." You don't want them to bring other customers to you, with the expectation that they will get the same prices.
Again, no discounts for these folks..
Often friends, family, and co-workers might ask if you could make the same piece in a different color. When you get started, you can't afford to please everyone and make something with every contingency in mind. If you did, you would end up buying too much inventory, probably at small quantity, thus higher, prices. You would be stuck with a lot of beads and other parts that you are not usually working with.
Trying to please everyone will lead you off your path to success. It's not worth it.
But there's that Face. It's contorted, sad, pitiful, pleading. It's so hard to turn that face down. It's so hard to say no. Making $10.00 on a necklace seems so appealing.
You've got to get past that Face. You've got to steel yourself. Clench your fists. Don't cave in. Don't cave into the Face.
If you wait about a minute, the Face disappears, and they say, OK, I'll take it in the color you've made it in.
But so many new jewelry artists can't get past that Face.
One of the greatest thrills of all time is when someone pays real money for something you have designed and created.
The first question pops up: Can I make some serious money making jewelry?
Why not? With smart planning, strategizing and marketing, you should even be able to make a living from your creative impulses.
Pursue a strategy of "DEPTH", not "BREADTH". Limit your inventory at first. Buy a "few" parts in large quantities. Limit your colors, the types of findings and metal beads you use, stringing materials, and the like. [After a few years, you'll be able to broaden your inventory, as older customers are ready for new items, and you have enough of a customer base that you can buy more things in bulk.]
The more expensive your parts, the harder it will be to mark up your finished product in order to make a profit.
If you try to design your business so that you can meet every contingency -- that is, respond to every request or market niche -- you'll end up buying a lot of different "parts" to have breadth, rather than depth, of inventory. This will cost you. Each part will have to be bought in smaller quantities, and thus will be more expensive.
If, instead, you concentrate on replicating a limited number of designs, (perhaps varying certain design-features rather than coming up with completely new and different designs), you'll be able to buy parts in larger quantities, making them less expensive.
[As your business develops and matures, your goals will change, and you will seek greater breadth -- but this is a subject for another article.]
Who are your customers?
What will your customers be willing to pay, say, for a pair of earrings?
Where are your customers located? How will they get to you, or you to them?
What will it cost you to link up to your target market? - travel, displays, packaging, timing
Check out similar merchandise in stores, flea markets, on-line and other places that sell jewelry like yours, and that target customers like the ones you want to target. How have they priced similar merchandise?
Plug in your competitor(s) website addresses into Google. You'll see who lists them -- their customers, their suppliers, the people they advertise with, the sites where they list their website addresses, and their critics.
Remember, it's always easier to lower a price, than raise a price. Customers smile at lower prices, but frown on raised prices.
Some Formulas To Help You Price Your Pieces
You need to write down this information:
1) Cost of All Parts (P)Use your "typical" costs. If you got a good buy on some parts, don't use the discounted cost, unless this is going to become your "typical" cost.
If you overpaid for something, you will eat the additional costs -- not pass these along in the price. To set a Retail Price, we usually multiply the cost of all parts by a factor of "2", in our pricing formula. To set a Wholesale Price, we usually multiply the cost of all parts by a factor of "1.4", in our pricing formula.
2) Cost of your Labor (L)Figure out what you would expect to make per hour if someone were paying you a salary. $10.00/hour is reasonable for a beginner.
Determine on average, how many hours it takes to make the piece. Figure out the hours to the nearest quarter of an hour. That is, if you took 1 hour 6 minutes to make a piece, consider that 1 1/4 hours.
The number of hours times the hourly rate is your cost of labor.
3) Overhead costs (O) (rent, electricity, consumable supplies, cost of travel to acquire your supplies, and the like).
It's too much work to account for all of these kinds of costs, so we use a formula to estimate these costs.Assume your "overhead" costs equal an additional 20-25% of the total cost of parts plus the cost of labor.
Now, compute your TOTAL COST:TOTAL COST = Cost of All Parts + Labor + Overhead Overhead is estimated as:
.20 * (Parts + Labor) (if you're working at home)
.25 * (Parts + Labor) (if you're working in a store)
Now you have to translate your "cost" into a "price".
When you first start out, it's often difficult to recoup your labor, that is, the amount of time you put into making a product. You can work as a "slave", and set your Labor at $0.00, but this only works in the very short term. You can't survive as slave labor.
If you work as a slave or reduce your labor costs for the short term, (such as trying to get your foot in the door at a particular place), you would modify the L-Labor cost in our formula.
COMPUTING THE FAIR RETAIL PRICEBy computing a Total Minimum Price, and a Total Maximum Price, you can get a range of fair prices. Something priced in this range, and sold, would result in you the seller going away happy, and your customer going away happy.
We use 3 pieces of cost information:
P - cost of parts
L - cost of labor
O - overhead estimated as .2*(P + L)
TOTAL MINIMUM PRICE = (2*Cost of All Parts) + (Labor) + .20*(P + L)
TOTAL MAXIMUM PRICE = 1.5 * TOTAL MINIMUM PRICE
Your TOTAL MINIMUM PRICE would then be $24.40.
($20.40, if you worked as a slave labor so L=$0.00 -- just this once)
Your TOTAL MAXIMUM COST (where you have charged the maximum amount for your labor) would be $36.60.
In our example above, if your product cost: the range of a fair retail price was between $24.40 and $36.60.
If you feel your target market won't pay at least, in this example, $24.40 for the finished product, you need to rethink. Either reduce your costs, or redesign the product, lower your labor costs, make your pieces faster, or find an alternative market.
If you feel your target market would be willing to pay more than
$36.60, you need to rethink. Increase the costs of your parts, raise your
salary, add some extra packaging, find places in locales where these people
might more likely find your products.
Too many people underprice their products.
Don't be afraid to adequately price your products. This formula is a good guide.
Jewelry is typically marked up higher than other goods. There are many reasons for this. The cost of getting and maintaining an inventory of parts is high; you can't buy just 1 bead at a time as needed. Jewelry fashions change every 3-4 months, often radically, leaving you with some unsaleable stock.
YOUR PROFITS: Assuming your cost was $10.00 plus $2.00 labor, plus $2.40 overhead, or $14.40, and you sold your item for $24.40, your profit would be $10.00. You would want to set aside between 25% and 50% of this profit for "reinvestment" into your business. Thus, after you paid your labor ($2.00), bought replacement parts ($10.00), and paid all your associated overhead ($2.40), you would put between $2.50 and $5.00 towards purchasing additional things for your business, and the remainder in your business bank account.
USING THE FORMULA FOR WHOLESALE
In computing a range of fair wholesale prices, we change the "multiplier". Instead of "2.0" times the cost of your parts, we use "1.4".
So, the formula becomes:
TOTAL MINIMUM WHOLESALE PRICE = (1.4*Cost of All Parts) + (Labor) + .20*(P + L)
TOTAL MAXIMUM WHOLESALE PRICE = 1.5 * TOTAL MINIMUM PRICE
WHOLESALE - SOME PRICING CONSIDERATIONS
[If you are just starting up and are in business for yourself making and selling jewelry, then use this rule of thumb: If someone is buying 10 similar pieces from you at a time, then give them a wholesale price (using the 1.4x multiplier).
If they are buying only one or a few pieces at at a time, then give them your retail price, as computed by our retail formula (using 2.0x multiplier).
Thus, if you are only wholesaling a few pieces at a time, then 2.0x might be your minimum acceptable amount.]
What's nice about these formulas, is that you can anticipate whether your pieces, and the fair price you need to get for them, will work when selling to a store for resale.
The retail formula gives you a range of prices this store would have to sell these at.
The wholesale formula gives you a range of prices that you would need to get for yourself. [Use the 1.4x multiplier if you are selling 10 or more similar items at a time; use the 2.0x multiplier if you are only selling one or a few items at one time.]
Thus, you can determine if it's a good deal for both you
and the store.
CONSIGNMENT: SOME PRICING CONSIDERATIONS
Many artists and craftspersons are dependent on consignment sales, since many of the retail outlets for these types of products must share the "risk" of sales with the artist. That is, the retail outlet cannot afford to buy the pieces outright. They can only afford to create a retail environment conducive for the sale of crafts and artwork.
Thus, the retailer, in consignment, basically agrees to accept a little less of a profit from the sale of any item. The artist/craftsperson also agrees to accept a little less money.
Typically, the retailer and artist/craftsperson might negotiate an item's "price" based on what they think someone will pay for it. Then they will agree how to split the money. A very common split is 60% of the sales price goes to the retailer, and 40% goes to the artist/craftsperson. Also common is 70% retailer/30% artist craftsperson. Less common is 50/50, 40/60 or 80/20.
Now the artist/craftsperson has to determine if the return is sufficient to result in a profit. If the decided-upon price for an item was $10.00, and the negotiated split was 60/40, the artist would expect $4.00 from its sale. This $4.00 would have to cover the cost of the parts, the general overhead costs, and hopefully some or all of the artist's labor, as well as some extra money to reinvest in the business.
Suppose the item was a pair of earrings, the cost of the parts was $1.00, the cost of labor $2.50, and overhead .88. The cost to the artist would be $4.38 -- .38 more in cost then in return. The artist could decide to take less for his or her labor. Or, the artist could renegotiate with the retailer to set a higher price for the item. The retailer would evaluate whether the item could sell at a higher price, or would sit around gathering dust, thus costing the retailing overhead costs, that could otherwise be offset with a better, faster selling item.
[Retailers need to "turn" merchandise around at least 2x, and ideally 3x each year. That is, each square foot of selling space must generate a certain number of dollars each year to enable the retailer to pay the rent and other overhead costs generated by that square foot of selling space.] If the retailer is resistant to raising the price, and the return is insufficient to cover the artist's costs, then the artist needs to re-evaluate the product or the location for selling that product.
In consignment, the retail is always assuming the greater risk. Hence the 60/40 split in favor of the retailer is a fair bargain. If you are offered a consignment deal, say of 30/70 in your favor, this should raise a yellow flag. It suggests the retailer doesn't understand his/her business fundamentals. This might mean that the retailer may not push your merchandise, keep it clean, display it well, or if sold, pay you in a timely manner.
Example: necklace I made that cost me $10.50 wholesale to make..........Sterling silver chain with an inch dichroic pendant? Is $40.00 too high?
Thank you for your help
Minimum: 2*cost of parts + cost of labor + .2*(cost of parts and labor)
Maximum: 1.5 * MINIMUM
Minimum = 2*10.50 + 5.00 + .2*(10.50+5.00) = 29.10
According to the formula, the maximum fair price the store could charge for a piece would be about $44.00. At that price and a 65% return to you, you would get $28.37. This would be more in line.
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If you have any other questions about pricing and selling your jewelry, please email us or call.
We'd be happy to answer your questions.
Warren Feld or James Jones
Land of Odds