PRICING AND SELLING YOUR JEWELRY Instructor: Warren Feld

PRICING AND SELLING YOUR JEWELRY
Instructor: Warren Feld
CraftArtEdu.com
Copyright, 9/2012, Feld, CraftArtEdu.com
i. Introduce Myself
JEWELRY DESIGN IS A LIFE LIVED WITH WEARABLE ART.
MY NAME IS WARREN FELD,
AND I AM HERE TO SHARE SOME OF MY LIFE EXPERIENCES AND INSIGHTS WITH
YOU
ABOUT THE BUSINESS OF CRAFT.
TODAY WE WILL LEARN ABOUT PRICING AND SELLING YOUR JEWELRY,
AND HOW TO BE SMART ABOUT IT.
ii. materials
THE MATERIALS YOU WILL NEED TO HAVE ON HAND ARE:
PEN OR PENCIL
SOME PAPER TO WRITE ON,
AND,
A CALCULATOR
iii. pricing your jewelry
YOU WILL LEARN A SIMPLE MATHEMATICAL FORMULA
FOR PRICING YOUR JEWELRY
ii. What this class is about
DURING MY PROFESSIONAL CAREER, I HAVE DEVELOPED BUSINESSES
AND CONSULTED WITH BUSINESSES AND TAUGHT BUSINESS STUDENTS ABOUT
GOOD MANAGEMENT.
WHEN I WAS IN MY LATE 30'S, I BEGAN TO EXPLORE MORE OF MY ARTISTIC SIDE.
I MADE JEWELRY. I SOLD JEWELRY AT CRAFT FAIRS AND FLEA MARKETS, ON
CONSIGNMENT,
IN GALLERIES, AND EVENTUALLY IN MY OWN STORE AND ON-LINE.
THE MANAGEMENT APPLICATIONS I WAS VERY FAMILIAR WITH WERE KEY TO
MY SUCCESS.
TODAY'S LESSON IS ABOUT ONE KEY TO SUCCESS: SMART PRICING.
WE DISCUSS WHY JEWELRY SELLS.
WE GO OVER DIFFERENT KINDS OF PRICING STRATEGIES USED BY JEWELRY
DESIGNERS AND THE JEWELRY INDUSTRY.
I PRESENT A SIMPLE MATHEMATICAL PRICING FORMULA.
I EXPLAIN THE FORMULA, AND BREAK THIS DOWN INTO LITTLE STEPS.
THEN WE PRACTICE APPLYING THE FORMULA AND PRICING SOME PIECES OF
JEWELRY.
AT THE END OF THE LESSON, I DISCUSS THE DIFFERENCES AMONG RETAIL,
WHOLESALE AND CONSIGNMENT.
I BRIEFLY DISCUSS SOME KEY BUSINESS STRATEGIES WHICH ARE VERY
RELATED TO PRICING.
AND I OFFER SOME FINAL WORDS OF ADVICE.
I KNOW YOU ARE EAGER.
LET'S GET STARTED.
I. CAN YOU MAKE MONEY AT THIS?
PRICE.1-0 crystal excitement bracelet
PRICE.1-0joanne
MY FRIEND JOANNE LOVES MAKING JEWELRY.
SHE MADE SO MANY PIECES OF JEWELRY, THAT HER HUSBAND SAID "NO
MORE!",
UNLESS SHE STARTED SELLING SOME OF IT.
SHE WAS INTRIGUED, BUT SCARED AT THE SAME TIME.
HOW WOULD SHE PRICE THINGS? -- SHE WONDERED.
PRICE.1-0marcia
ONE OF MY STUDENTS -- MARCIA -- KNEW FROM THE START
THAT SHE WANTED TO MAKE MONEY SELLING HER JEWELRY.
SHE BEGAN BY SELLING HER PIECES TO FAMILY, FRIENDS AND CO-WORKERS.
SHE SOLD LOTS OF PIECES, BUT AT THE SAME TIME,
FOUND HERSELF FINANCIALLY GOING BUST.
HOW DID SHE PRICE THINGS? -- I ASKED HER.
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I HAVE BEEN MAKING AND SELLING JEWELRY FOR MORE THAN 20 YEARS.
OVER AND OVER, I AM ASKED BY FRIENDS, STUDENTS, AND JEWELRY
DESIGNERS –
CAN I MAKE REAL MONEY SELLING MY JEWELRY?
THEY ARE HAPPY TO HEAR,
YES, THEY CAN!
AND YOU CAN, AS WELL!
BUT YOU HAVE TO BE SMART ABOUT IT.
YOU HAVE TO...
- PLAN
- MARKET, AND
- PRICE
WE ARE GOING TO TOUCH ON ALL THESE THINGS, BUT PARTICULARLY ABOUT
SMART PRICING.
IIA. PRICING STRATEGIES
PRICE.2-0 3 pieces of jewelry with price tags
MOST JEWELRY DESIGNERS ARE NOT SMART ABOUT PRICING THEIR JEWELRY.
ALL TOO OFTEN, DESIGNERS 'UNDERPRICE' THEIR PIECES.
THEY MIGHT SELL TO FRIENDS, RELATIVES OR CO-WORKERS AT A DISCOUNT.
THEY MIGHT FORGET TO CHARGE ANYTHING FOR THEIR LABOR.
THEY MIGHT FEEL AWKWARD ABOUT ASKING FOR A HIGHER PRICE.
NOT QUITE AS OFTEN, BUT OFTEN ENOUGH, DESIGNERS 'OVERPRICE' THEIR
PIECES.
THEY MIGHT SEE JEWELRY PRICES IN HIGH END BOUTIQUES OR DEPARTMENT
STORES,
AND FEEL THE NEED TO MATCH THEM.
THEY MIGHT OVER-VALUE WHAT THEY CAN GET FOR THEIR LABOR.
THEY MIGHT RELY ON PRICING STRATEGIES WHICH DO NOT WORK WELL
FOR THE PERSON MAKING AND DESIGNING JEWELRY.
IN EITHER CASE, 'UNDER-PRICING' OR 'OVER-PRICING', THE DESIGNER IS
DEMONSTRATING
A LACK OF KNOWLEDGE ABOUT THE TRUE COSTS OF ALL THE PARTS
AND ACTIVITIES THAT GOES INTO CREATING A PIECE OF JEWELRY.
AND HOW TO MANAGE ALL THESE COSTS.
PRICE.2-0a PRICING STRATEGIES
THERE ARE DIFFERENT KINDS OF PRICING STRATEGIES.
(1) ONE TYPE OF PRICING STRATEGY IS CALLED "KEYSTONING'.
KEYSTONING IS WHERE YOU MULTIPLY YOUR COSTS BY 2, TO ARRIVE AT YOUR
PRICE.
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IF YOUR COSTS WERE $10.00, THEN YOUR PRICE WOULD BE $20.00.
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IN THE JEWELRY INDUSTRY, YOU WILL HEAR A LOT ABOUT 'TRIPLE
KEYSTONING'.
HERE YOU MULTIPLY YOUR COSTS BY 3, TO ARRIVE AT YOUR PRICE.
IF YOUR COSTS WERE $10.00,THEN YOUR PRICE WOULD BE $30.00.
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KEYSTONING WORKS WELL IF YOU ARE A BOUTIQUE OR GIFT STORE BUYING
FINISHED JEWELRY.
YOU WOULD DOUBLE (KEYSTONE) OR TRIPLE (TRIPLE KEYSTONE) THE COSTS OF
EACH FINISHED PIECE.
KEYSTONING, AS A PRICING STRATEGY, WORKS WELL WHEN YOU ARE DEALING
WITH FINISHED GOODS.
THE PRICE IS SIMPLY A MULTIPLE OF THE COST OF THE PARTS.
KEYSTONING ASSUMES THAT LABOR AND OVERHEAD COSTS HAVE ALREADY
BEEN FACTORED INTO THE COST OF THE JEWELRY.
KEYSTONING IS A LITTLE MORE AWKWARD TO USE,
WHEN DEALING WITH MANUFACTURING GOODS, LIKE MOST JEWELRY
DESIGNERS DO..
KEYSTONING TENDS TO OVER-ACCOUNT FOR THE COST OF PARTS,
AND UNDER-ACCOUNT FOR THE COSTS OF YOUR LABOR.
KEYSTONING WORKS WELL FOR JEWELRY STORES.
KEYSTONING DOES NOT WORK AS WELL FOR JEWELRY DESIGNERS.
(2) A SECOND TYPE OF PRICING STRATEGY IS CALLED 'WHAT THE MARKET WILL
BEAR'
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HERE, BASED ON YOUR GUT FEELINGS,
YOU WOULD SET THE PRICE AT THE HIGHEST PRICE YOU THINK SOMEONE
MIGHT PAY FOR YOUR PIECE.
YOU SEE THIS STRATEGY EMPLOYED IN A LOT OF TOURIST AREAS.
BUSINESSES IN TOURIST AREAS USUALLY PAY VERY HIGH RENTAL RATES.
THEY ARE OFTEN DEPENDENT ON MAKING THEIR MONEY IN A VERY DEFINED
SEASONAL TIMEFRAME.
THEY ASSUME THEY WILLNEVER SEE THESE CUSTOMERS AGAIN.
WHAT HAPPENS WITH A WHAT-THE-MARKET-WILL-BEAR STRATEGY...
AT THE POINT OF SALE, THE CUSTOMER GOES AWAY HAPPY AND THE BUSINESS
GOES AWAY HAPPY.
HOWEVER, WHEN THE CUSTOMER GOES HOME,
AND THEY SHOW THEIR PURCHASE TO THEIR FRIENDS OR FAMILY,
OR SHOP AROUND,
THEY BEGIN TO REALIZE THEY OVERPAID.
SO, OVER THE MEDIUM AND LONG TERM, THE CUSTOMER IS NO LONGER HAPPY.
AN UNHAPPY CUSTOMER CAN SPREAD BAD WORD OF MOUTH.
WHILE THAT PARTICULAR CUSTOMER MAY NEVER REVISIT THAT TOURIST
AREA,
THEY MIGHT CONVINCE THEIR FRIENDS AND FAMILIES,
WHO MAY PLAN A VISIT,
TO AVOID THAT PARTICULAR SHOP.
(3) THE THIRD TYPE OF STRATEGY IS CALLED "FAIR VALUE'.
THIS IS WHAT I AM TEACHING HERE.
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A FAIR PRICE IS SET, USING A FORMULA.
THIS FORMULA REQUIRES THAT THE ARTIST MANAGE ALL THE TYPES OF COSTS
SHE OR HE CONFRONTS, WHEN SETTING A PRICE.
THESE COSTS INCLUDE,
THE COST OF PARTS,
THE COST OF LABOR,
AND OVERHEAD COSTS -- THINGS LIKE RENT, ELECTRICITY, WEAR AND TEAR ON
TOOLS AND EQUIPMENT, TELEPHONE, TRAVEL
-- BASICALLY EVERYTHING ELSE ASSOCIATED WITH MAKING AND SELLING
YOUR JEWELRY.
WITH A FAIR PRICE, YOU MAY NOT GET THE HIGHEST AMOUNT YOU POSSIBLY
CAN GET,
BUT YOU WILL GET AN AMOUNT THAT MORE THAN COVERS YOUR COSTS,
AND LEAVES SOME MONEY LEFT OVER TO SPEND ON YOURSELF, OR RE-INVEST
IN YOUR BUSINESS.
WITH A FAIR PRICE, WHEN YOU SELL THAT PIECE OF JEWELRY,
BOTH YOU AND YOUR CUSTOMER GO AWAY HAPPY,
AND BOTH OF YOU STAY HAPPY.
IIB. what hat do you wear: jobber, wholesaler, retailer?
JOBBER
RETAILER
WHOLESALER
PRICE.2-1 designer wearing hat
AS A JEWELRY DESIGNER, YOU PROBABLY WEAR DIFFERENT BUSINESS HATS.
YOU ARE A JOBBER, OR MANUFACTURER WHEN YOU MAKE THINGS FROM
SMALL PARTS.
YOU ARE A WHOLESALER OR DISTRIBUTOR WHEN YOU SELL YOUR THINGS TO
OTHER PEOPLE TO RE-SELL.
YOU ARE A RETAILER. WHEN YOU SELL YOUR THINGS DIRECTLY TO THE
PUBLIC.
EACH 'HAT' RELIES ON A DIFFERENT SET OF ASSUMPTIONS
ABOUT MEASURING COSTS, AND SETTING PRICES.
THIS MAKES THINGS CONFUSING FOR THE JEWELRY DESIGNER,
ESPECIALLY WHEN IT COMES TO PRICING.
BECAUSE THE JEWELRY DESIGNER MUST WEAR ALL THREE HATS.
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JOBBERS OR MANUFACTURERS TYPICALLY PRICE THEIR WARES AT A 25% MARK
- UP.
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THAT IS THEY MULTIPLY THEIR COSTS BY 1.25.
JOBBERS WORK ON VOLUME -- THAT IS, SELLING A LOT OF ITEMS AT THE SAME
TIME -- , SO THEY CAN GET BY,
BY CHARGING A SMALL MARKUP.
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WHOLESALERS OR DISTRIBUTORS TYPICALLY PRICE THEIR WARES AT A 25-40%
MARK-UP.
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THAT IS THEY MULTIPLY THEIR COSTS BY A FACTOR BETWEEN 1.25 AND 1.4.
WHOLESALERS ALSO WORK ON VOLUME, SO THEY TRADE-OFF A LOWER PRICE,
SO THAT THEY CAN SELL MORE ITEMS AT A TIME.
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RETAILERS TYPICALLY DOUBLE (KEYSTONE) OR TRIPLE (TRIPLE KEYSTONE)
THEIR WARES.
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THAT IS, THEY DOUBLE OR TRIPLE THEIR COSTS.
RETAILERS SELL ONE PIECE AT A TIME.
THEIR COSTS PER PIECE SOLD ARE MUCH HIGHER THAN JOBBERS OR
WHOLESALERS.
THUS, THEY NEED TO USE A HIGHER MARK-UP.
THE PRICING FORMULA I INTRODUCE NEXT
IS VERY SENSITIVE TO THE REAL-WORLD COSTS THE JEWELRY DESIGNER
CONFRONTS AND MUST MANAGE.
JEWELRY DESIGN IS A PROCESS TO BE MANAGED.
THIS PRICING FORMULA IS A HELPFUL MANAGEMENT TOOL.
III. PRICING FORMULA
A. The basic formula
PRICE.3A-0 The Formula
WE USE OUR PRICING FORMULA TO SET A FAIR MINIMUM AND A FAIR
MAXIMUM RETAIL PRICE.
THUS, WE END UP WITH A RANGE OF POSSIBLE ACCEPTABLE AND FAIR
PRICES,
AND WE SETTLE ON ONE PARTICULAR PRICE WITHIN OUR RANGE.
WHAT I LIKE ABOUT THE PRICING FORMULA WE ARE LEARNING TODAY
IS THAT IT BASES THE FINAL PRICE ON ALL THE COST FACTORS
WHICH THE JEWELRY DESIGNER MUST MANAGE.
IN A WAY, IT FORCES THE DESIGNER TO
THINK ABOUT
AND STRATEGIZE ABOUT
AND HAVE TO ASSERT CONTROL OVER ALL THE COSTS,
...IN ORDER TO MAKE A SMART PRICING CHOICE,
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PRICE.3A-0.1 formula has 3 variables
THE FORMULA IS MADE UP OF 3 VARIABLES:
- THE COST OF YOUR PARTS
- THE COST OF YOUR LABOR
- AND EVERYTHING ELSE, WHICH WE REFER TO AS "OVERHEAD".
THE EFFORT TO TRACK, RECORD AND FOLLOW THE EXACT COSTS OF
EVERYTHING ELSE WOULD BE PROHIBITIVE.
SO, IN OUR FORMULA, WE ESTIMATE WHAT THE OVERHEAD COSTS WOULD BE.
LET'S DISCUSS THESE VARIABLES ONE BY ONE –
PARTS
LABOR
OVERHEAD
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PRICE.3A-1 Cost OF PARTS variable
2P
THIS FIRST VARIABLE -- THE COST OF PARTS –
CONSISTS OF TWO PIECES OF INFORMATION.
THE FIRST IS THE NUMBER "2".
WE CALL THIS A MULTIPLIER.
THE SECOND PIECE OF INFORMATION IS THE COST OF OUR PARTS.
HERE WE USE WHAT WOULD BE CALLED THE "TYPICAL COST OF YOUR PARTS,"
WHAT WOULD YOU TYPICALLY PAY FOR YOUR BEADS, CLASPS, STRINGING
MATERIALS
AND OTHER PIECES USED IN YOUR JEWELRY?
THE TYPICAL COST WILL VARY, BASED ON THE MATURITY OF YOUR BUSINESS.
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IF YOU ARE JUST AT THE VERY INITIAL STAGES,
YOUR TYPICAL COST MIGHT BE THE FULL RETAIL PRICES YOU PAY IN BEAD AND
CRAFT STORES.
OR YOU MIGHT FIND YOU ARE NOW ABLE TO BUY THE LARGER PACKAGES
-- STRANDS OF BEADS, INSTEAD OF 1 BEAD AT A TIME.....THE 100 FT SPOOL OF
CABLE WIRE, RATHER THAN THE 10-FT SPOOL.
AS YOUR BUSINESS DEVELOPS, AND YOU ARE ABLE TO BUY IN LARGER
QUANTITIES,
YOU MAY ROUTINELY QUALIFY FOR QUANTITY DISCOUNTS, SAY 10% - 20%.
LET'S SAY YOUR BUSINESS HAS DEVELOPED TO THE POINT WHERE YOU CAN BY
AT WHOLESALE PRICES.
THEN YOU MIGHT QUALIFY FOR DISCOUNTS FROM 30% TO 50%, AND YOUR
TYPICAL COSTS WOULD BE LOWER STILL.
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NOW, "TYPICAL COST" DOES NOT NECESSARILY MEAN THE ACTUAL PRICE YOU
PAID.
YOU MAY HAVE BOUGHT SOME BEADS ON SALE.
IN OUR FORMULA, YOU WOULD NOT USE THE SALE PRICE.
YOU WOULD USE THE TYPICAL COST, WHICH WOULD BE HIGHER.
SAY YOU NEEDED TO PICK UP SOME BEADS LAST MINUTE,
AND HAD TO BUY THEM AT A HIGHER THAN TYPICAL COST.
HERE YOU WOULD EAT THE EXTRA COST.
THAT EXTRA COST WOULD NOT BE REFLECTED IN YOUR FINAL PRICE. ONLY THE
TYPICAL COST WOULD.
YOU MIGHT USE PRICES FROM A STORE YOU BUY FROM ROUTINELY,
OR FROM A CATALOG, TO DETERMINE YOUR TYPICAL COSTS.
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LET'S LOOK AT OUR FORMULA, AGAIN.
THE FIRST VARIABLE IS 2 TIMES P.
IF OUR TYPICAL COSTS FOR OUR PARTS TOTALED $10.00, THEN OUR FIRST
VARIABLE WOULD EQUAL $20.00.
THE SECOND VARIABLE IS LABOR.
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PRICE.3A-2 Labor variable w/clock
THE SECOND VARIABLE -- L -- REPRESENTS THE COST OF LABOR
LABOR REPRESENTS TWO THINGS:
- THE TIME IT TAKES TO MAKE THE PIECE
- THE RATE PER HOUR YOU CHARGE
THE TIME IT TAKES TO DESIGN A PIECE IS NOT COUNTED;
HOWEVER, YOUR DESIGN SKILLS AND TALENTS ARE PAID FOR INDIRECTLY
BY THE RATE PER HOUR YOU CHARGE FOR YOUR SERVICES.
IF YOU MADE THE PIECE YOURSELF,
THIS IS THE AMOUNT YOU WOULD PAY YOURSELF FOR LABOR.
IF YOU HAD SOMEONE ELSE MAKE THE PIECE,
THIS IS THE AMOUNT YOU WOULD PAY THEM FOR THEIR LABOR.
FOR DESIGNERS GETTING STARTED AND ON INTO THE MIDDLE OF THEIR
CAREERS,
IT IS REASONABLE TO CHARGE AT A $10.00 PER HOUR RATE.
FOR MORE ESTABLISHED DESIGNERS,
THIS BEGINS TO JUMP UP TO $12.00, THEN $15.00, THEN $20.00, AND $25.00 PER
HOUR.
AS YOU RAISE YOUR HOURLY RATES,
YOU HAVE TO BE CAREFUL NOT TO PRICE YOURSELF OUT OF THE MARKET.
YOU MIGHT REACH A POINT WHERE IT MAKES MORE SENSE TO HIRE SOMEONE
AT $10.00/HOUR TO MAKE YOUR JEWELRY,
THAN TO PAY YOURSELF $25.00/HOUR TO MAKE THAT PIECE.
I ALSO TELL PEOPLE THAT, ONCE IN A BLUE MOON, AND ONLY TEMPORARILY,
TO GET THEIR FOOT INTO THE DOOR,
THEY CAN SET THEIR LABOR AT $0.00, AND WORK AS A SLAVE.
BUT REMEMBER, WHEN YOU WORK FOR NOTHING,
YOU ALSO PUT YOURSELF AT RISK FOR NOT BEING ABLE TO FULLY COVER
YOUR OVERHEAD COSTS.
YOU CANNOT CONTINUE WORKING FOR NOTHING FOR VERY LONG.
IF YOU DO SET YOUR LABOR TEMPORARILY AT $0.00,
MAKE SURE THE COMPANY OR PERSON YOU ARE SELLING YOUR PIECES TO
UNDERSTANDS THAT THIS IS A ONE-TIME DISCOUNT.
NOTE: YOU NEVER DISCOUNT YOUR PARTS COSTS.
3A-1 CHARGE OFF LABOR ON THE CLOCK
WE CHARGE OFF LABOR COSTS IN 15 MINUTE INTERVALS.
TO VISUALIZE THIS, LOOK AT OUR CLOCK. IT IS DIVIDED UP INTO 4 15-MINUTE
SECTIONS.
IF OUR PIECE TOOK 13 MINUTES TO MAKE, WE WOULD BE IN THE FIRST
QUARTER.
LOOK AT OUR CLOCK AND WHERE 13 MINUTES WOULD FALL. YOU SEE IT IS IN
OUR FIRST QUARTER.
AT A $10.00/HOUR RATE, WE WOULD CHARGE OUR CUSTOMER $2.50 FOR LABOR.
L = $2.50
IF OUR PIECE TOOK 18 MINUTES TO MAKE, WE WOULD BE IN THE SECOND
QUARTER.
AGAIN, FIND 18 ON OUR CLOCK.
WE WOULD CHARGE $5.00 IN THIS CASE.
L=$5.00
IF OUR PIECE TOOK 1 HOUR AND 38 MINUTES TO MAKE, WE WOULD CHARGE
$17.50.
L = $17.50
ONE HOUR WOULD BE $10.00, AND 38 MINUTES PUTS US IN THE 3RD QUARTER,
THUS $7.50.
OVERHEAD IS NEXT.
PRICE.3A-3 overhead variable
THE THIRD VARIABLE IN OUR FORMULA IS OVERHEAD
OVERHEAD REFERS TO "EVERYTHING ELSE".
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WHILE WE ARE MAKING EACH PIECE OF JEWELRY -- SAY, WE ARE MAKING
BRACELET THAT TAKES 20 MINUTES TO MAKE -DURING THIS 20 MINUTES, WE ARE ALSO PAYING FOR
- RENT
- ELECTRICTY
- HEAT AND AIR
- WEAR AND TEAR ON OUR TOOLS AND EQUIPMENT
- USING UP CONSUMABLE SUPPLIES, LIKE PAPER AND PENCILS
WE ALSO NEED TO ALLOCATE TO EACH PIECE OF JEWELRY WE MAKE, THINGS
LIKE
- THE COSTS OF TRAVELING, SAY TO A STORE TO SELL THE JEWELRY
- THE COSTS OF MARKETING AND PROMOTING OUR JEWELRY
WE DON'T GET TO DO AND HAVE ALL THESE THINGS FOR FREE.
WE NEED TO PRICE OUR PIECES SUFFICIENTLY SO THESE KINDS OF OVERHEAD
COSTS GET PAID FOR.
ELSE WE'D BE MAKING OUR JEWELRY OUT ON THE STREET.
3A-OVERHEAD-SUB-FORMULA
THE OVERHEAD VARIABLE IS ALSO A FORMULA.
.2 TIMES THE SUM OF P + L
THIS IS OUR WAY OF ESTIMATING OVERHEAD COSTS.
THE FORMULA WE USE TO ESTIMATE OVERHEAD HAS 3 PIECES OF
INFORMATION.
THE FIRST -- .2 -- IS CALLED A MULTIPLIER.
WE USE .2 WHEN WE ARE WORKING OUT OF OUR HOMES.
.2 STANDS FOR 20%. WE ESTIMATE OUR OVERHEAD COSTS IN THIS SITUATION AS
20% OF OUR OTHER COSTS -- PARTS AND LABOR.
IF WE WERE WORKING OUT OF A STORE, WE WOULD USE A LARGER NUMBER
FOR OUR MULTIPLIER,
TYPICALLY .25 OR .3.
IN A STORE SETTING, THERE IS MORE OVERHEAD TO PAY FOR. SO WE USE 25%
OR 30% AS THE BASIS FOR OUR MULTIPLIER.
THE SECOND AND THIRD PIECES OF INFORMATION WE HAVE ALREADY
CALCULATED -P -- THE TYPICAL COST OF OUR PARTS
AND,
L -- THE COST OF OUR LABOR, CHARGED OFF IN 15-MINUTE INTERVALS, FOR
MOST DESIGNERS AT A RATE OF $10.00 PER HOUR
SO, OUR OVERHEAD ESTIMATE, IF WE WERE WORKING OUT OF OUR HOME,
WOULD BE
.2 * (P + L)
TO SOLVE THIS ALGEBRAIC FORMULA, WE WOULD FIRST ADD THE SUM IN
PARENTHESES -- (P + L)
draw circle around (p+l)
THEN, WE WOULD MULTIPLY THIS SUM BY OUR MULTIPLIER, IN THIS CASE .2
PRICE.3A-0.2 laying out info on paper
LET'S LOOK AT THE FORMULA AGAIN.
WE SOLVE EACH OF THE 3 VARIABLES SEPARATELY.
THEN WE ADD THEM ALL UP.
YOU WILL MAKE FEWER MATH MISTAKES IF YOU WRITE THESE VARIABLES
DOWN ON YOUR PAPER AS A LIST, LIKE THIS:
P=
2P =
L=
O = (P + L) =
.2 (P+L) =
MINIMUM = 2P + L + .2(P+L)
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TO COMPUTE THE MAXIMUM FAIR PRICE,
WE MULTIPLY THE MINIMUM FAIR PRICE BY 1.5.
IF THE MINIMUM FAIR PRICE WAS $10.00, THEN THE MAXIMUM FAIR PRICE
WOULD BE $10.00 TIMES 1.5, OR $15.00.
IN THIS EXAMPLE, SETTING A PRICE ANYWHERE BETWEEN $10.00 AND $15.00
WOULD BE A FAIR PRICE.
B.1 PRACTICE THE FORMULA - RETAIL
LET'S PRACTICE OUR FORMULA BY PRICING OUT A FEW PIECES OF
JEWELRY.
HAVE A PEN, PAPER AND A CALCULATOR READY.
AS WE GO PIECE BY PIECE,
YOU MIGHT WANT TO PAUSE THE VIDEO,
AND CALCULATE THE PRICE ON YOUR OWN,
BEFORE WE GO OVER THE NUMBERS TOGETHER.
OR, YOU CAN FOLLOW ALONG WITH THE VIDEO AS WE DO OUR
CALCULATIONS.
PRICE.3B-1-0
WE'LL START WITH A BEAD-STRUNG PIECE I DESIGNED CALLED THE
"CRYSTAL EXCITEMENT BRACELET"
THIS PIECE IS MADE UP OF AN ASSORTMENT OF AUSTRIAN CRYSTAL AND
PEWTER BEADS.
IT HAS A PEWTER CLASP.
IT IS STRUNG ON CABLE WIRE, AND THE CLASP IS SECURED ONTO THE
WIRE WITH CRIMP BEADS, HORSESHOE WIRE PROTECTORS AND CRIMP
COVERS.
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WRITE THESE NUMBERS DOWN ON A PIECE OF PAPER.
THE PARTS COST $17.60.
THIS PIECE TOOK 43 MINUTES TO MAKE, AND WE WILL CHARGE OUR
LABOR AT A RATE OF $10.00 PER HOUR.
THE PIECE WAS MADE IN A HOME STUDIO SETTING, SO WE WILL USE ".2"
AS OUR MULTIPLIER WHEN CALCULATING OUR OVERHEAD COSTS..
PRICE.3B-1-1
PRICE.3B-1-2
WHAT IS OUR MINIMUM FAIR RETAIL PRICE FOR THE CRYSTAL EXCITEMENT
BRACELET?
OUR FORMULA AGAIN:
2P + L + .2 (P+L)
LET'S SOLVE THIS FORMULA.
YOU MIGHT WANT TO PAUSE THIS VIDEO, AND CALCULATE THIS ON YOUR
OWN, BEFORE WE GO OVER THE NUMBERS TOGETHER.
OR YOU CAN CONTINUE ALONG WITH THE SCREEN
THE CORRECT MINIMUM FAIR PRICE IS: $47.72.
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LET'S REVIEW OUR MATH.
FOR OUR RETAIL PRICING FORMULA, WHEN WE COMPUTE THE COSTS
RELATED TO PARTS, WE USE "2" AS OUR MULTIPLIER.
TWO TIMES THE TYPICAL COST OF OUR PARTS. THIS EQUALS 2 x $17.60,
or $35.20.
PRICE.3B-1-5A
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YOU WORKED ON THIS PROJECT FOR 43 MINUTES. IF WE LOOK AT OUR
CLOCK, THIS PUTS YOU IN THE 3RD QUARTER OF THE HOUR.
AT A $10.00/HOUR RATE, YOUR LABOR COST WOULD BE $7.50.
PRICE.3B-1-5B
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WE ESTIMATE OVERHEAD. FIRST WE ADD THE COST OF THE PARTS PLUS
OUR LABOR. WE GET $17.60 PLUS $7.50, OR $25.10.
WE MULTIPLY $25.10 BY OUR MULTIPLIER - .2 - AND GET $5.02.
MAKE NOTE: WHEN CALCULATING "OVERHEAD", WE USE ONLY THE COST
OF THE PARTS, NOT 2 TIMES THE COST OF OUR PARTS!
drawcircle around(P, then underline 2P in red
PRICE.3B-1-5C
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WE ADD OUR 3 VARIABLES TOGETHER, AND GET $47.72 AS OUR MINIMUM
FAIR PRICE.
PRICE.3B-1-5D
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WE CALCULATE THE MAXIMUM FAIR RETAIL PRICE BY MULTIPLYING THE
MINIMUM BY 1.5.
SO, $47.72 TIMES 1.5 EQUALS OUR MAXIMUM FAIR PRICE, WHICH WOULD
BE $71.58.
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WE CAN SET A FAIR RETAIL PRICE FOR THE CRYSTAL EXCITEMENT
BRACELET ANYWHERE BETWEEN
$47.72 and $71.58.
AND WE WOULD KNOW THAT BOTH YOU AND THE CUSTOMER WOULD GO
AWAY HAPPY.
THE CUSTOMER WOULD NEVER FEEL CHEATED, SO THERE WOULD BE NO
NEGATIVE LONG TERM CONSEQUENCES.
YOU WOULD MAKE A SUFFICIENT PROFIT.
COVERING YOUR COSTS.
YOU WOULD BE ABLE TO INVEST IN SOME NEW PRODUCTS, SUPPLIES OR
DISPLAYS.
AND HAVE A LITTLE BIT OF MONEY LEFT OVER FOR YOURSELF.
GREAT.
NOW, LET'S TEST-DRIVE OUR FORMULA AGAIN.
PRICE.3B-2 jewelry 2 to price, crystal excitement bracelet with sterling silver
parts
SUPPOSE, IN THE CRYSTAL EXCITEMENT BRACELET, WE USED STERLING SILVER
BEADS AND A STERLING SILVER CLASP, INSTEAD OF PEWTER ONES.
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WRITE THESE NUMBERS DOWN:
THE COST OF OUR PARTS WOULD BE HIGHER, IN THIS CASE:
P = $38.60
INSTEAD OF $17.60, WHEN WE USED PEWTER BEADS AND CLASP.
LABOR WOULD BE THE SAME -- IT STILL TOOK US 43 MINUTES TO MAKE.
OVERHEAD WOULD VARY A LITTLE, BECAUSE OUR PARTS COST MORE.
THAT OUR OVERHEAD COSTS WOULD VARY AND INCREASE IN THIS CASE,
MAKES SENSE,
WITH STERLING SILVER, WE WOULD HAVE MORE MAINTENANCE COSTS,
IT MAY TAKE MORE EFFORT TO PROMOTE AND SELL OUR PIECES WITH
STERLING SILVER, SINCE THEY WILL END UP AS MORE EXPENSIVE.
LET'S FIND OUR MINIMUM AND MAXIMUM FAIR RETAIL PRICES.
YOU MIGHT WANT TO PAUSE THE VIDEO HERE, AND DO YOUR CALCULATIONS
BY HAND.
WE WILLCONTINUE THE VIDEO BY REVIEWING OUR MATH.
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OUR MINIMUM FAIR RETAIL PRICE WOULD BE $93.92
ADD UP THE NUMBERS OF EACH OF OUR 3 VARIABLES WITH ME
-- PARTS, LABOR AND OVERHEAD
PARTS = $38.60, SO 2 TIMES OUR PARTS WOULD BE $77.20
LABOR = $7.50, BECAUSE AT 43 MINUTES, WE WERE IN OUR 3RD QUARTER OF THE
HOUR
OVERHEAD = $9.22, WHICH IS THE SUM OF P + L -- $46.10 MULTIPLIED BY .2
SO, $77.20 PLUS $7.50 PLUS $9.22 = $93.92
OUR MAXIMUM FAIR RETAIL PRICE WOULD BE $140.88
THAT IS, OUR MINIMUM OF $93.92 MULTIPLIED BY 1.5.
LET'S PRICE OUT A BEAD-WOVEN PIECE NEXT.
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PRICE.3B-3 jewelry 3 to price, cobblestones bracelet, bead woven
THIS BEAD WOVEN PIECE WAS DESIGNED BY KATHLEEN LYNAM.
SHE CALLS THIS PIECE THE COBBLESTONES BRACELET.
THE PIECE IS MADE UP OF JAPANESE SEED BEADS, JAPANESE DROPS BEADS
AND 2 GLASS DRUK BEADS. IT IS BEAD-WOVEN USING NYMO THREAD.
AS WITH MANY BEADWOVEN PIECES, THE COST OF THE PARTS IS VERY LOW,
AND THE TIME IT TAKES TO MAKE THE PIECE IS VERY LONG.
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LET'S USE OUR FORMULA TO FIND THE MINIMUM FAIR RETAIL PRICE.
WRITE THESE NUMBERS DOWN:
P = $6.25
L = 9 HOURS TO MAKE
O = .2 (P + L)
IF YOU WANT, YOU CAN PAUSE THE VIDEO HERE,
AND CALCULATE THESE ON YOUR OWN.
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WE SOLVE THE EQUATION, USING OUR COST DATA FOR THISPIECE.
WE GET A
MINIMUM FAIR PRICE = $121.75
AND MULITPLYING THAT BY 1.5, TO GET OUR MAXIMUM FAIR PRICE, WE GET
$182.63.
A FAIR RETAIL PRICE FOR THE COBBLESTONES BRACELET COULD BE SET
ANYWHERE IN THAT RANGE. KATHLEEN PRICED HER PIECE AT $145.00.
OK, LET'S DO ONE MORE PRICING CALCULATION.
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PRICE.3B-4 jewerly 4 to price, mix n match bracelet, wire working
THE FINAL PIECE WE WILL PRACTICE OUR PRICING FORMULA ON IS A WIRE
WORK PIECE.
THIS PIECE, CALLED MIX 'N MATCH BRACELET, WAS DESIGNED BY DONNA
ZIMMER.
THIS PIECE IS MADE FROM COPPER WIRE AND COMPONENTS, MOOD BEADS,
SOME CZECH GLASS, AND A COPPER COLORED PEWTER TOGGLE.
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WRITE THESE NUMBERS DOWN:
P = $12.55
L = 3 HOURS
O = .2 (P + L)
IF YOU WANT, YOU CAN PAUSE THE VIDEO HERE TO DO THE CALCULATIONS.
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THE MINIMUM FAIR PRICE FOR THIS PIECE IS $63.61.
THE MAXIMUM IS $95.42.
DONNA PRICED HER PIECE AT $75.00.
BUT, GIVEN HOW WELL THIS PIECE SELLS FOR HER,
I THINK SHE COULD HAVE PRICED IT A LITTLE HIGHER, PERHAPS $90.00, WITHIN
OUR RANGE.
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B.2 Practice the formula - wholesale
PRICE.3B-5 wholesale fomrula
WE CAN MODIFY OUR RETAIL PRICING FORMULA A LITTLE BIT, SO THAT WE CAN
CALCULATE A FAIR WHOLESALE PRICE.
WE DO THIS BY CHANGING OUR PARTS COST MULTIPLIER.
INSTEAD OF "2" TIMES THE COST OF YOUR PARTS,
WE USE THE MULTIPLIER OF "1.4".
SO, 1.4 TIMES P BECOMES OUR FIRST VARIABLE IN OUR WHOLESALE FORMULA.
THE OTHER VARIABLES REMAIN THE SAME.
NOW, IN A REVIEW OF BUSINESS TEXTS, YOU WILL FIND SUGGESTIONS THAT
THIS MULTIPLIER CAN BE ANYWHERE BETWEEN 1.25 AND 1.4.
FROM EXPERIENCE, HOWEVER, I WOULD NOT GO BELOW 1.4.
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B.2a When to use Retail and when to use Wholesale formula
WHOLESALE MEANS MORE VOLUME.
YOU SETTLE FOR A LOWER MARK-UP IN EXCHANGE FOR SELLING MORE ITEMS
AT A TIME.
MY RULE OF THUMB:
IF YOU ARE SELLING 10 SIMILAR ITEMS AT A TIME, YOU CAN USE THE
WHOLESALE FORMULA.
THESE DON'T HAVE TO BE THE EXACT SAME ITEMS,
BUT SIMILAR ENOUGH IN TERMS OF THE TYPES OF PARTS USED,
THE TIME EACH PIECE TOOK TO MAKE, THE GENERAL DESIGN SENSE.
YOU USE THE RETAIL FORMULA WHEN YOU ARE SELLING LESS THAN 10 SIMILAR
ITEMS AT A TIME.
YOU USE THE RETAIL FORMULA, AND NOT THE WHOLESALE FORMULA
-- EVEN WHEN YOU ARE SELLING TO SOMEONE, LIKE A BUYER FOR A STORE,
WHO, IN TURN, IS GOING TO RE-SELL YOUR PIECES.
BECAUSE, AT LESS THAN 10 PIECES AT A TIME,
YOU CANNOT ACHIEVE ENOUGH EFFICIENCIES IN YOUR OPERATIONS
TO JUSTIFY GIVING A BUYER A LARGE DISCOUNT.
IN THIS CASE, IF THE PRICE YOU HAVE TO SELL YOUR PIECE AT IS TOO HIGH FOR
RE-SALE,
THEN YOU NEED TO WALK AWAY FROM THE SITUATION. THE SITUATION WON'T
WORK.
IF YOU LOWERED YOUR PRICE, TO ACCOMMODATE THE SITUATION,
YOU WOULD END UP NOT MAKING ENOUGH MONEY TO COVER ALL YOUR
COSTS.
FIND A DIFFERENT PLACE TO SELL YOUR JEWELRY,
OR RE-DESIGN IT WITH LOWER COST PARTS, FOR EXAMPLE,
TO MAKE THINGS WORK OUT BOTH FOR YOU, AS WELL AS THE RE-SELLER.
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PRICE.3B-6 using both wholesale and retail formulas to predict whether
good designer/seller partnership
YOU CAN USE BOTH THE RETAIL AND THE WHOLESALE FORMULAS IN TANDEM
TO PREDICT WHETHER A PARTICULAR BUSINESS RELATIONSHIP WILL WORK
OUT, BOTH FOR YOU AND A RESELLER.
BASICALLY, YOUR RE-SELLER WILLWANT TO KEYSTONE YOUR PIECE TO SET A
PRICE.
THUS, THE RE-SELLER WILL WANT TO DOUBLE THEIR COSTS TO SET THEIR
PRICE.
USE THE RETAIL FORMULA TO CALCULATE WHAT A FAIR RETAIL PRICE WOULD
BE, THAT THE RE-SELLER COULD CHARGE HIS OR HER CUSTOMER.
USE THE WHOLESALE FORMULA, AGAIN,WHEN SELLING 10 SIMILAR ITEMS AT A
TIME, TO DETERMINE WHAT PRICE YOU NEED TO SELL YOUR PIECE AT.
YOUR PRICE, IN EFFECT, BECOMES THE WHOLESALER'S COST. AND HE OR SHE
WILL WANT TO BE ABLE TO DOUBLE THIS AMOUNT, WHEN SETTING THEIR OWN
PRICES.
SAY, YOUR COSTS ARE:
P = $20.00
L = $2.50
O = $4.50
YOUR FAIR RETAIL PRICE WOULD FALL BETWEEN $47.00 AND $70.50.
YOUR FAIR WHOLESALE PRICE WOULD FALL BETWEEN $35.00 AND $52.50.
IF YOU SOLD YOUR PIECES AT $35.00 EACH, THE RE-SELLER COULD KEYSTONE
THEM AND CHARGE $70.00.
YOU CAN SEE FROM THE RESULTS OF OUR TWO FORMULAS...
BOTH ARE FAIR PRICES -- YOUR PRICE IS FAIR FOR YOU AND THE RE-SELLER
AND THE RE-SELLER'S PRICE WILL BE FAIR FOR THEMSELVES AND THEIR
CUSTOMERS.
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IF YOU WERE SELLING LESS THAN 10 SIMILAR PIECES AT A TIME,
THIS BUSINESS RELATIONSHIP WOULD NOT WORK.
YOU WOULD USE THE RETAIL FORMULA TO DETERMINE WHAT A FAIR PRICE
WOULD BE FOR YOU.
THE LOWEST FAIR PRICE WOULD BE $47.00.
YOU WOULD ALSO USE THE RETAIL FORMULA TO PREDICT THE PRICE THE RESELLER WOULD NEED TO SET,
KNOWING THE RE-SELLER WILL WANT TO DOUBLE THEIR COSTS.
IF THEY DOUBLED $47.00, GETTING $94.00,
THIS WOULD PUT THE PIECE OUTSIDE THE RANGE OF FAIR RETAIL PRICES.
THUS, $94.00 WOULD NOT BE A GOOD DEAL FOR THEIR CUSTOMER.
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C. What If Analyses
THE FORMULA IS A TOOL.
IT IS NOT AN ABSOLUTE.
YOU ALWAYS HAVE TO STEP BACK FROM THE FORMULA,
AND ASK YOURSELF IF YOU CAN LIVE WITH THE SUGGESTED PRICE,
OR WHETHER YOU ARE UNCOMFORTABLE WITH IT.
AGAIN, THE FORMULA IS A GUIDE.
IT IS STILL UP TO YOU TO SET THE FINAL PRICE.
IF YOU THINK THE SUGGESTED PRICE IS TOO LOW, OR TOO HIGH,
YOU NEED TO EVALUATE THE SITUATION A LITTLE BIT MORE.
WHAT CAN YOU DO, AND STILL END UP WITH A FAIR PRICE?
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PRICE.3C-1 price too high
WHAT CAN YOU DO WHEN YOU FEEL THE FORMULA PRICE IS TOO HIGH?
SUPPOSE THE FORMULA INDICATES THAT THE MINIMUM PRICE
YOU SHOULD SELL YOUR BRACELET FOR IS $50.00,
BUT YOU DON'T THINK YOU CAN GET $50.00 FOR IT....
IF YOU CHARGED LESS THAN $50.00, FOR THE BRACELET AS IS,
YOU NO LONGER WOULD BE GETTING A FAIR PRICE.
YOU WOULD RISK
RUNNING SHORT OF MONEY
AND PUTTING YOUR BUSINESS AT RISK.
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WHAT KINDS OF THINGS CAN YOU DO, TO GET A LOWER, YET FAIR, MINIMUM
PRICE?
LOOK BACK AT THE FORMULA. THE FORMULA GIVES YOU SOME INSIGHT INTO
THE KINDS OF COSTS YOU CAN CHANGE.
YOU CAN PAY YOURSELF LESS.
YOU CAN RE-DESIGN YOUR PIECE TO USE LESS EXPENSIVE PARTS.
YOU CAN RE-DESIGN YOUR PIECE SO THAT IT TAKES LESS TIME TO CONSTRUCT.
YOU CAN CHANGE MARKETS.
PERHAPS IN THE PART OF TOWN YOU INTENDED TO SELL THE PIECE, $50.00
SEEMS TOO HIGH.
IN ANOTHER PART OF TOWN, HOWEVER, $50.00 MIGHT BE MORE REASONABLE.
YOU CAN USE LESS EXPENSIVE PACKAGING, OR NO PACKAGING AT ALL.
PERHAPS YOU NEED TO REDUCE OVERHEAD COSTS BY RE-SETTING UP YOUR
STUDIO IN A LOWER RENT DISTRICT.
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PRICE.3C-2 price too low
WHAT CAN YOU DO WHEN YOU FEEL THE PRICE IS TOO LOW?
SUPPOSE THE FORMULA INDICATES THAT THE MAXIMUM PRICE YOU CAN SELL
YOUR BRACELET FOR IS $125.00,
AND YOU THINK YOU CAN GET MORE THAN $125.00 FOR IT....
AGAIN, IF YOU JUST UPPED YOUR PRICE AND DID NOTHING ELSE,
THE PRICE WOULD NOT BE FAIR.
YOU MIGHT SELLTHE PIECE,
BUT EVENTUALLY THE CUSTOMER WILL FEEL THAT SHE OVERPAID,
AND COULD GENERATE SOME NEGATIVE WORD OF MOUTH ABOUT YOUR
BUSINESS,
OR REFUSE TO BUY ANYTHING ELSE FROM YOU AGAIN.
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WHAT KINDS OF THINGS CAN YOU DO, TO GET A HIGHER, YET FAIR, MAXIMUM
PRICE?
YET AGAIN, WE CAN RETURN TO THE FORMULA FOR IDEAS AND INSIGHTS.
YOU CAN RAISE YOUR SALARY, IF YOU FEEL YOU CAN SUSTAIN A HIGHER RATE
OVER TIME.
YOU CAN RE-DESIGN YOUR PIECE TO USE MORE EXPENSIVE PARTS.
YOU CAN RE-DESIGN THE PIECE TO BE MORE ELABORATE, THUS TAKING YOU
MORE TIME TO CONSTRUCT
YOU CAN CHANGE MARKETS.
YOU CAN ADD MORE PACKAGING
YOU CAN MOVE YOUR STUDIO TO A HIGHER RENT DISTRICT.
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D. Calculating Profit
PRICE.3D-1 profit formula
PRICE - TOTAL COST = PROFIT
SAY, YOU SOLD A PIECE OF JEWELRY FOR $50.00, THAT COST YOU $20.00.
WITH THE FIRST $20.00, YOU WOULD REPLACE THE PARTS WHICH SOLD,
PAY THE LABOR, AND COVER YOUR OVERHEAD.
THE REMAINING $30.00 IS YOUR PROFIT.
HOWEVER, THAT $30.00 HAS TO COVER A LOT OF WHAT I CALL POST-PROFIT
COSTS.
ONE BIG MISTAKE JEWELRY DESIGNERS MAKE IS THAT THEY THINK,
WITH A $30.00 PROFIT AS IN THIS CASE,
THEY HAVE $30.00 TO SPEND ON THEMSELVES.
THIS ISN'T THE CASE.
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D2. WHERE DOES THAT PROFIT GO?
WHERE DOES THAT PROFIT GO?
FIRST OFF,
IT HAS TO COVER A LOT OF OTHER TYPES OF COSTS, NOT INCLUDED AS PARTS,
LABOR OR OVERHEAD.
IT HAS TO PAY FOR LONG TERM LIABILITIES, LIKE CREDIT CARD DEBT, DEBT ON
BANK LOANS, FEES FROM LEASED EQUIPMENT.
IT HAS TO PAY FOR BUSINESS AND PERSONAL INCOME TAXES.
IT HAS TO COVER ANY PRICE INCREASES THAT COME WITH INFLATION, OR
CHANGES IN CURRENCY SURCHARGES FROM ONE COUNTRY TO THE NEXT.
IT HAS TO COVER BAD DEBT, THAT MIGHT COME FROM ACCEPTING A BAD
CHECK, OR SOMEONE USING A FRAUDULENT CREDIT CARD
IT HAS TO COVER SITUATIONS, SUCH AS MAKING A CUSTOM NECKLACE FOR
SOMEONE, WHO DOESN'T LIKE IT,
OR FOR SOME OTHER REASON, REFUSES TO PAY FOR THE PIECE, AND YOU'RE
STUCK WITH IT.
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SECOND,
YOU NEED TO TAKE PART OF YOUR PROFIT, AND
RE-INVEST ABOUT 25-50% OF IT, IN NEW PARTS TO EXPAND YOUR INVENTORY,
NEW DISPLAYS AND NEW EQUIPMENT.
WHEN YOU START OUT IN BUSINESS, YOU MIGHT BE REINVESTING 50%.
WHEN YOU ARE MORE ESTABLISHED, YOU MIGHT BE REINVESTING LESS, SAY
25%.
AND YOU NEED TO TAKE THE LITTLE BIT OF YOUR PROFIT THAT IS LEFT, AND
TREAT YOURSELF SAY, TO A CUP OF COFFEE.
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IV. Retail, Wholesale, Consignment
PRICE.4-0 retail store / wholesale production / consignment gallery
AS A JEWELRY DESIGNER, YOU TYPICALLY SELL YOUR PIECES AS
- RETAIL
- WHOLESALE
AND/OR
-CONSIGNMENT
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IN RETAIL, YOU CAN USE THE RETAIL FORMULA TO HELP YOU SET A PRICE.
IN RETAIL, YOU SELL ONE PIECE AT A TIME.
YOU DEPEND ON A HIGHER MARK-UP.
WITHIN ANY 1 SQUARE FOOT OF SELLING SPACE, THE RETAIL STORE NEEDS TO
TURN ITEMS DISPLAYED IN THAT SPACE, IDEALLY, 3 TIMES IN A YEAR.
THAT MEANS, WITHIN ANY 12-MONTH PERIOD, IF ONE ITEM TOOK UP THAT 1
SQUARE FOOT OF SELLING SPACE, THAT RETAIL STORE WOULD WANT TO SELL 3
OF THOSE ITEMS.
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IN WHOLESALE, YOU WOULD USE THE WHOLESALE FORMULA, WHEN SELLING
10 SIMILAR ITEMS AT A TIME.
YOU WOULD USE THE RETAIL FORMULA, IF SELLING FEWER THAN 10 SIMILAR
ITEMS AT A TIME.
OBVIOUSLY, WHEN SELLING FEWER THAN 10 ITEMS AT A TIME, AND USING THE
RETAIL FORMULA, YOU WILL BE REDUCING THE OPPORTUNITIES FOR YOU TO
SELL WHOLESALE, BECAUSE YOUR PRICES WILL BE HIGHER
HOWEVER, YOU WILL ALSO BE PREVENTING YOURSELF FROM FACING MAJOR
FINANCIAL MANAGEMENT AND CASH FLOW ISSUES, THAT ARISE WHEN YOU
GET INTO A SITUATION YOU CAN'T AFFORD.
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IN CONSIGNMENT, YOU PUT YOUR ITEMS IN A STORE OR GALLERY, AND GET
PAID WHEN YOUR ITEMS SELL.
CONSIGNMENT IS THE WORST OF ALL POSSIBLE SELLING SITUATIONS,
BUT IT MAY BE THE ONLY OPPORTUNITIES OPEN TO YOU,
ESPECIALLY WHEN YOU FIRST GET STARTED IN BUSINESS.
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IN CONSIGNMENT, THE STORE OR GALLERY IS ALWAYS AT GREATER FINANCIAL
RISK THAN THE ARTIST.
BASED ON A MEASURE OF FINANCIAL RISK, A 60%-40% SPLIT, IN FAVOR OF THE
STORE, MAKES THE MOST SENSE.
A 50/50% SPLIT OR A 40/60% SPLIT WOULD BE OK.
ANYTHING ELSE, LIKE A 70/30% OR 30/70% SPLIT SHOULD RAISE SOME YELLOW
FLAGS.
USUALLY A SPLIT LIKE THIS SIGNALS THAT THE STORE OR GALLERY DOES NOT
UNDERSTAND ITS FINANCIAL RISKS.
WHAT MOST OFTEN HAPPENS IS THAT THE ARTIST DOESN'T GET PAID ON TIME,
AND HAS TO SPEND A LOT OF TIME CONFRONTING THE BUSINESS, TO TRY TO
GET THE MONEY OWED THEM.
WITH A SPLIT LIKE THIS, YOUR ITEMS MIGHT NOT BE KEPT POLISHED AND
CLEANED.
SALES STAFF MIGHT NOT BE TRAINED ON THE BEST SALES PITCH FOR YOUR
JEWELRY.
YOUR JEWELRY MIGHT GET BURIED IN A DISPLAY CASE OUT OF THE WAY OF
CUSTOMER TRAFFIC.
IN A CONSIGNMENT RELATIONSHIP,
THE STORE USUALLY SETS THE FINAL PRICE FOR YOUR ITEMS.
BUT YOU CAN ASSIST THE STORE IN SETTING PRICES FAIR TO BOTH YOU AND
STORE, BY USING THE RETAIL AND WHOLESALE PRICING FORMULAS.
WHEN NEGOTIATING A CONSIGNMENT ARRANGEMENT, TRY TO GET A WRITTEN
CONTRACT.
IF YOU CAN GET A WRITTEN CONTRACT, TRY TO PUT IN THERE UNDER WHAT
CIRCUMSTANCES YOU CAN CHANGE THE RELATIONSHIP FROM CONSIGNMENT
TO WHOLESALE.
FOR EXAMPLE, IF A CERTAIN NUMBER OF PIECES SELL WITHIN A SPECIFIED
TIME, THE STORE WOULD THEN BUY THE PIECES DIRECTLY FROM YOU, RATHER
THAN YOU CONSIGN THEM.
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V. Related Business Strategies
PRICE.5-0 graphic of all strategies
I WANT TO BRIEFLY DISCUSS SOME KEY BUSINESS STRATEGIES
WHICH HAVE A GREAT IMPACT ON PRICING
- BUY YOUR PARTS CHEAPLY
- KNOW YOUR MARKET
- KNOW YOUR COMPETITION
- PRICE TO MAKE SUFFICIENT PROFIT
- MAINTAIN VELOCITY OF SALES
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A. Buy parts cheaply
PRICE.5A-0 depth vs. breadth
PRICE.5A-1 The Face
WHEN YOU START A JEWELRY DESIGN BUSINESS, WHEN BUILDING UP YOUR
INVENTORY OF PARTS AND OF FINISHED PIECES, YOU PURSUE A STRATEGY OF
DEPTH, RATHER THAN BREADTH.
THIS MEANS YOU LIMIT THE VARIETY OF STYLES, COLORS, SHAPES AND SIZES
IN YOUR PARTS INVENTORY.
AND YOU LIMIT THE VARIATION IN THE TYPES OF PIECES YOU MAKE FOR SALE.
YOUR GOAL HERE IS TO BUY PARTS IN GREATER QUANTITIES, SO THAT YOU CAN
GET PRICE BREAKS.
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BUYING IN DEPTH, NOT BREADTH, INITIALLY.
THIS IS VERY DIFFICULT, I KNOW, ESPECIALLY WHEN YOU BEGIN YOUR
BUSINESS.
YOU FEEL YOU NEED TO PREPARE FOR EVERY CONTINGENCY, EVERY TYPE OF
REQUEST, JUST TO MAKE THE SALE.
YOU'VE DONE A BRACELET IN PURPLE, AND YOUR BEST FRIEND ASKS IF YOU
CAN DO THE SAME THING IN RED,
...AND YOU DON'T HAVE THE BEADS YOU NEED IN RED ON-HAND.
YOU'RE SELLING A VINTAGE STYLE LINE, AT FIRST, AND A FRIEND OF A FRIEND
ASKS YOU TO MAKE UP SOME WEDDING JEWELRY IN A MORE CONTEMPORARY
STYLE,
...AND YOU WILL HAVE TO GO OUT AND INVEST IN A WHOLE NEW SET OF PARTS
IF, WHEN YOU START YOUR BUSINESS, YOU TRY TO PURSUE A STRATEGY OF
BREADTH, YOU WON'T BE ABLE TO COVER ALL YOURCOSTS.
AFTER A FEW YEARS, YOU WILL BE ABLE TO SWITCH STRATEGIES A BIT. AT
THAT POINT,
YOU WILL HAVE A CUSTOMER BASE READY FOR SOME NEW THINGS,
AND MORE CASH ON HAND TO EXPAND YOUR INVENTORY.
BUT DEPTH, NOT BREADTH,AT FIRST.
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THAT MEANS,
YOU NEED TO LEARN TO SAY NO!
WHAT I THINK TRIPS MOST DESIGNERS UP WHEN THEY START THEIR
BUSINESSES,
IS THAT THEY FEEL OBLIGATED TO MEET EVERYBODY ELSE'S NEEDS, AND CAN'T
SAY NO.
USUALLY, WHEN A FRIEND ASKS FOR A PIECE IN RED,
AND YOU ONLY HAVE IT AVAILABLE IN PURPLE,
AND YOU SAY NO,
THAT FRIEND MAKES, WHAT I CALL, THE FACE.
SHE'S PLEADING, BEGGING, IMPLORING YOU TO MAKE THAT PIECE IN RED.
IT'S SO HARD NOT TO MELT DOWN AND RESPOND TO THE FACE WITH A YES.
BUT HOLD YOUR GROUND.
PEOPLE WHO FLASH YOU THE FACE,
KEEP HOLDING THAT FACIAL EXPRESSION FOR 60 SECONDS.
YOU, THE DESIGNER, ONLY HAVE TO HOLD YOUR GROUND FOR 60 SECONDS.
AT WHICH POINT, THEY STOP MAKING THE FACE, AND SAY,
ALRIGHT, I'LL TAKE IT IN PURPLE.
SO MANY DESIGNERS, HOWEVER, CAVE IN WAY BEFORE 60 SECONDS HAS COME
AND GONE.
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B. Know your market
PRICE 5B-0
THE SECOND BUSINESS STRATEGY THAT RELATES TO PRICING HAS TO DO WITH
KNOWING YOUR MARKET.
WE'LL SAVE OUR CLASS ON MARKETING FOR ANOTHER DAY, BUT HERE ARE
SOME KEY POINTS,
WHICH HAVE SOME
EFFECT ON PRICING DECISIONS.
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YOUR MARKET IS SOME WAY OF DRAWING A BOUNDARY AROUND YOUR
CUSTOMERS.
THIS BOUNDARY MAY BE GEOGRAPHIC, SUCH AS EVERYONE IN A
NEIGHBORHOOD IN NASHVILLE, TENNESSEE.
IT MAY BE BASED ON INCOME, SUCH AS PEOPLE MAKING OVER $50,000 / YEAR.
IT MAY BE BASED ON AGE, RACE, RELIGION, WORK PLACES, WORK SCHEDULES,
SEASONS OF THE YEAR.
IT MAY BE BASED ON VIRTUAL THINGS, SUCH AS SOCIAL MEDIA NETWORKS, OR
JEWELRY SALES SITES ONLINE
IN FACT, YOUR MARKET WILL HAVE SEVERAL SUB-GROUPS, WE CALL MARKET
NICHES.
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THE SUCCESSFUL DESIGNER WILL BE A KEEN OBSERVER OF PEOPLE'S SHOPPING
BEHAVIORS WITHIN EACH MARKET NICHE.
THESE SHOPPING BEHAVIORS INCLUDE THINGS LIKE,
- CHARACTERISTICS OF JEWELRY THESE PEOPLE BUY
- WHY THESE CHARACTERISTICS PLEASE THEM IN SOME WAY, AND WHY OTHER
CHARACTERISTICS DISPLEASE THEM
- WHERE THEY BUY THEIR JEWELRY
- HOW THEY FIND OUT ABOUT THESE PLACES, AND GET TO THEM
- WHAT THEY ARE WILLING TO PAY FOR WHAT
- WHAT IT WILL TAKE, AND WHAT IT WILL COST YOU, TO LINK UP WITH THESE
PEOPLE
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C. Know your competition
PRICE.5C-0
THE NEXT STRATEGY IS
TO KNOW YOUR COMPETITION
VISIT STORES THAT SELL JEWELRY SIMILAR TO YOURS
VISIT ONLINE SITES THAT SELL JEWELRY SIMILAR TO YOURS
VISIT ALL THE PLACES, REAL AND VIRTUAL, THAT YOU THINK YOUR CUSTOMER
BASE -- THAT IS,YOUR MARKET NICHES -- GO TO WHEN LOOKING FOR JEWELRY.
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HOW ARE THESE JEWELRY PIECES PRESENTED AND DISPLAYED?
HOW ARE THEY DESCRIBED AND MARKETED?
HOW ARE THEY PRICED?
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D. Mark up and price to make a sufficient profit
PRICE5D-0 the formula again
YOU WANT TO MARK UP AND PRICE YOUR PRODUCTS SO THAT YOU MAKE A
SUFFICIENT PROFIT
WHICH
COVERS ALL YOUR COSTS
GIVES YOURSELF SOME PAYMENT
LETS YOU REINVEST SOME MONEY TO EXPAND YOUR INVENTORY AND BUY
DISPLAYS AND EQUIPMENT
AND THAT YOUR CUSTOMER FEELS THEY GOT A FAIR DEAL
THE PRICING FORMULAS WE HAVE LEARNED HERE POINT YOU IN THIS
DIRECTION.
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E. Maintaining Velocity
PRICE.5E-0
A LOT OF JEWELRY DESIGNERS I WORK WITH FOCUS ON THE SALE OF EACH
PIECE.
I TELL THEM, INSTEAD, TO FOCUS ON THE RATE OF SALES -- CALLED THE
VELOCITY.
THE SUCCESSFUL DESIGNER MANAGES A PROCESS.
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THIS PROCESS BEGINS WITH THE PURCHASING OF PARTS.
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THEN THE MANUFACTURING OF JEWELRY
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CREATING OPPORTUNITIES FOR JEWELRY SALES.
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AND, LAST, SELLING PIECES, AND COLLECTING MONEY.
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BUT THE PROCESS DOESN'T STOP WITH THAT SALE.
IT CONTINUES WITH MORE PURCHASES OF PARTS,
MORE MANUFACTURING,
MORE CREATING SELLING OPPORTUNITIES,
AND MORE SALES AND MONEY.
THE RATE OR SPEED OF ALL THIS HAS TO BE CONSTANT,
OR INCREASING, TO GENERATE ENOUGH CASH FLOW TO PAY ALL THE BILLS,
AND KEEP YOUR DOORS OPEN.
WHEN THAT DESIGNER TELLS ME,
"WOW, I SOLD A NECKLACE FOR $100.00",
I START TO WORRY A BIT, IN THAT I'M NOT GETTING A CLEAR SENSE OF
MANAGEMENT ABILITIY IN THAT STATEMENT.
THIS SOUNDS LIKE A ONE-SHOT DEAL.
I AM MORE HOPING TO HEAR SOMETHING LIKE,
"WOW, WE CONTINUE TO SELL 6 NECKLACES A WEEK."
THIS SOUNDS MORE LIKE THE DESIGNER IS FOCUSING ON THE PROCESS.
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VI. FINAL ADVICE
AS I BEGAN OUR DISCUSSIONS ABOUT PRICING AND SELLING,
YES, YOU CAN MAKE SERIOUS MONEY SELLING JEWELRY.
BE SMART ABOUT IT.
GET A HANDLE ON ALL YOUR COSTS, NOT JUST THE COST OF YOUR PARTS.
INTERRELATE ALL YOUR COSTS, WHEN YOU CALCULATE PRICES.
....AND OUR FORMULA HELPS YOU HERE
AND,
SELL, SELL, SELL.
last screen sign off
I PRICE THINGS OF MINE,
AS WELL AS FOR OTHER JEWELRY AND BEAD WEAVING ARTISTS, STUDENTS,
CUSTOMERS IN MY STORE.
AND I GET VERY EXCITED EACH TIME A PIECE SELLS.
I ADMIT IT. IT'S A RUSH!
AND I ALSO FEEL CONFIDENT INSIDE,
AFTER EACH SALE,
THAT THE CUSTOMER GOT GOOD VALUE,
AND THAT THE DESIGNER, WHETHER MYSELF, OR SOMEONE I'VE WORKED WITH,
MADE A SUFFICIENT PROFIT.
CRAFTARTEDU OFFERS MANY CREATIVE AND EXCITING PROJECTS FOR YOU TO
GET INVOLVED WITH.
AS YOU WORK WITH ANY OF THESE, OR OTHER OF YOUR JEWELRY MAKING
PROJECTS, REMEMBER:
PRICE
LABOR
OVERHEAD
KEEP GOOD TRACK OF EACH OF THESE COSTS, USE THE FORMULA, AND
MANAGE YOUR BUSINESS TO SUCCESS.
THANK YOU AGAIN FOR WATCHING.
FOR CRAFTARTEDU,
I'M WARREN FELD.
Copyright © 2012 by Warren Feld, CraftArtEdu.
This handout is intended only for use by students enrolled in the Pricing and Selling Your Jewelry class on
CraftArtEdu.com.
Reproduction of this handout by or for any persons other than said enrolled students is strictly prohibited.
Warren Feld Jewelry
718 Thompson Lane, Ste 123
Nashville, TN 37204
615-292-0610
[email protected]