Pricing Custom Work

Gary Gordon, president of Samuel Gordon Jewelers in Oklahoma City, Okla., relies on a classic cost accounting principle to determine the prices of custom pieces made by his in-house designer and goldsmith, Robert Waite. Waite, who works by appointment only for special orders, asks customers to meet with him three times: first, to discuss design ideas; second, to scrutinize a wax model; and finally, to pick up the finished product.

Below and on the facing page are three examples of pricing custom-made pieces, with costs calculated using Gordon’s price formula, which considers materials, labor, and overhead. “Those are the three elements of cost,” says Gordon, who entered the family jewelry business immediately after receiving his CPA license. The jeweler charges 15% markup on his cost for metal but doesn’t mark up gemstones because he’d “price himself out of the market.” Labor charges are twice the hourly wages of the jeweler performing the work, and overhead is the same, based on a cost-accounting principle called the load factor. “It means that unless you can prove all of your overhead costs on paper, you use the labor cost formula to charge for overhead.” Gordon challenges jewelers who question his pricing practices: “Take an accounting course. I always have a fair bottom line by the end of the year.”

Eileen Kelley Alexanian and Ken Alexanian Kelley, owners, Diamonds ‘n Dunes, Manteo, N.C., make a Cape Hatteras Lighthouse necklace for stock to sell to vacationers to the beach community. Kelley says many surrounding shops sell versions of the lighthouse because it’s a popular tourist attraction. But Kelley’s piece is unique: “It’s not the same charm you can buy from a supplier,” he says. The Diamonds ‘n Dunes piece is 14k yellow gold with .30 ct. t.w. pavé diamonds on a wheat-style chain. It retails for $750.

The jeweler’s price formula for custom-made pieces is as follows: Charge triple keystone for materials and labor, plus a design fee that could be about 50% of the first sum, depending on the intricacy of the design. “Because we’re taking customers’ desires and, through our expertise in the industry, turning them into realities, that’s worth some money,” says Kelley.

Kelley related an anecdote illustrating how much his customers appreciate specially made items, even if the designs are simple and don’t require wax models. A local mom sought out Kelley to create a charm representing her 16-year-old daughter’s soccer and basketball interests. The jeweler adhered a gold basketball pendant and a gold soccer pendant on either side of a mother-of-pearl disc from a findings supplier, set the assembly in a frame he cut to fit the piece, and created a “swivel” bale, so the girl could easily flip from the soccer side to the basketball side, and vice versa. The result: The parents were “graciously appreciative,” and the teen sent a thank-you note to the jeweler for thinking of the novel design. “I [satisfied] everybody’s desire, and the idea was a moneymaker,” says Kelley. He paid $100 cost for materials, multiplied it by three for triple keystone, and charged a $200 design fee, for a final cost to the customer of $500.David and Janet Wiggins, the owners of Creative Jewelers in Corrales, N.M., have 45 years of combined experience making custom-designed platinum pieces. They use 90-10 iridium-grade platinum—the highest grade and the “old standard” of the metal—which, according to David, holds its shape twice as long as 950 platinum. “Once you bend [90-10 iridium] in place, it won’t move again,” says Wiggins.

The Wigginses refine and alloy their own metals—ultimately paying anywhere from 20% to 40% less than the metal’s market value—for creations they fabricate. For platinum, they pay about $20 per gram, then multiply that cost by five (“It’s the ultimate metal to work with, but you also put a lot more work into pieces,” says Wiggins), which equals $100 per gram (base price) for the platinum at retail. Labor charges above and beyond this sum are estimated and worked into the price-per-gram figure: “If a platinum piece requires lots of detailed filigree and piercing, I’ll charge another $100 per gram,” he says. “I’ve been doing this for so long that my experience tells me what price is fair to charge for labor.”

Charges for stone setting depend on the rarity of the gems. In the Wigginses’ studio, rough fees range from $10 to $500. Generally, the higher the quality of the stone, the higher the charge to set it, says the jeweler. For example, he would charge $500 to set a fine-quality 5-ct. emerald because “there’s always the chance the stone could chip or crack, and you’ve got to cover the cost of recutting it.”

Last summer, a vacationing detective from Scotland Yard was recommended to Wiggins for a design job. The customer wanted a modern-looking platinum ring with a very fine, oval-cut, 1-ct. Burmese ruby. “He wanted the oval wedge-set across the finger rather than with the finger,” says Wiggins. When the piece was complete, the platinum weight added up to 25 grams. At $160 per gram (including labor for the moderately difficult design job), the cost came to $4,000 for materials and labor, plus $1,500 for the ruby ($600 for the stone, a 100% markup of $600, and $300 to set it), for a final price of $5,500.

Based on nearly a decade of experience in the advertising industry, Pamela Meltzer offers a different formula for determining markup. “From what I’ve learned about the jewelry industry in the past couple years, wholesale markup on costs is about 40%, and at the retail level, markup is about keystone [twice] the wholesale price,” says Meltzer, the owner of PuppyPaws, Cleveland, Ohio. Markup on jewelry varies nationwide, and research from Jewelers of America’s most recent Cost of Doing Business Survey cites the average gross margin for all firms queried as 47.4%.

Meltzer wholesales dog- and cat-paw jewelry to jewelers and sells the items at retail prices on her Internet site, www.puppypaws.com. Meltzer says the chart on p. 68 was acquired from peers in the ad agency where the standard commission rate was 15%. The information is still useful for her work in jewelry, enabling her to make what she calls a “fair” profit.