Custom Design A Balancing Act for Profits

Custom jewelry design has advantages for retailers, including a chance to promote a service not available in every store and one that defies price-comparison.

It also has disadvantages, including precious time tied up in design and fabrication, not to mention the occasional customer who will never be happy with the finished piece.

The secret to success is knowing how to balance these pluses and minuses and how to price to your advantage. Unliked finished jewelry — which you buy for X and sell for Y — custom design has three profit elements to consider: materials, overhead and time. Here’s a closer look at each.

Materials & overhead: The easiest part of the equation to determine is the cost of materials. You have the least control over this, though it benefits you to consider which suppliers of components offer the best options on quality, price and delivery time.

Another factor is overhead costs, another area where you’ll have little control. In addition to regular overhead costs, jewelers who do custom work must buy manufacturing equipment, pay additional insurance for that equipment and, in some cases, pay a licensing fee to dispose of hazardous waste from the fabrication process.

Time: How to place a value on the time you spend on a custom-designed piece can be a much bigger challenge because it involves two diverse elements: planning and fabrication. The Jewelers’Guide to Creative Pricing (Richard Laffin, 1990, Chilton Co., Radnor, Pa.; call 610-964-4490) divides design and labor time into separate elements. But most jewelers interviewed for this series combine them into one per-hour charge.

Just what constitutes design time is pretty undefined. Do you charge for thinking about the piece while you’re taking a shower or do you start a stopwatch when you think about the design? Frank Yanke, a jeweler in Franklin, Mich., tried the stopwatch approach. He gave one to every bench jeweler in his shop and asked them to stop the watches every time they were interrupted. The nuisance factor far outweighed the timing accuracy, so he scrapped the idea. Now when giving customers price estimates, he relies on his experience in figuring how much time he’ll need.

Planning time varies greatly, depending on how well the customer describes what he or she wants and how long the jeweler takes to put the idea on paper. Sometimes a jeweler can make a sketch in a few minutes and get the customer’s approval on the spot. Sometimes a jeweler spends eight hours in detailed color rendering before a customer is ready to go to wax. And sometimes the customer decides this isn’t working and leaves.

What happens when the customer bails out after you’ve spent time on the design?Most jewelers return any deposit. “You win some, you lose some,” says Matthew Trent, a jeweler in Dallas, Tex. “If somebody isn’t going to buy, what am I going to do? Hand them a $600 bill for my time? I don’t think so.”

If the customer has approved all stages of design but then changes his or her mind, adds Craig Underwood, a jeweler in Fayetteville, Ark., maybe the deposit could be applied to something else in the store. Underwood has had customers ask for modifications, and even a redo at the wax stage, which he did at no charge. The bottom line, he says, is to make the customer happy.

Nuts and bolts of pricing: The question of what to charge remains. From discussions with jewelers who do custom designs, one general guideline emerges: charge more for a one-of-kind design than for one the customer agrees you can use again for stock. Beyond that, it varies because pricing is not an exact science. You’re best bet is to figure your material and overhead costs and then estimate to the best of your ability how long it should take to make.Set a price based on those figures.

Most of those interviewed for this article give customers a price range, though some admit it’s not always effective. “When I had a studio at home, a $100 variable didn’t bother anyone,” says Yanke. “Now that I have a storefront, if I tell them the piece will be $400 to $500, they hear the $400 part of it and that’s what they expect to pay.”

What happens when your estimate is off target? Trent once estimated a 14-inch sterling silver Mercedes replica would take three weeks to make but it took seven. “I missed by about 200 hours, but that was my fault, so I couldn’t ask the customer to pay,” he says.

Trent relied on a computerized tracking system for help in figuring costs. First, he determined it costs him $55 per hour per person at cost just to keep his business open and running. Then he added an appropriate wholesale markup and keystoned that amount for retail sales. (He sells wholesale and retail.) His labor costs: about $165 an hour. He admits that’s a hard bill for customers to swallow, but he feels the amount and quality of work that goes into a piece exceeds the efforts of his competition.

“For example, when we make a flat band with a bezel, side stones and a border, each part is separately cut and tapered; carved waxes are shot; the parts are cast, fabricated and decorated; and the stone is set, with polishing between each step,” he says. “Does that make my piece better than someone who casts it in one piece? Yes, I think so.” But he still feels his prices are competitive with those of other stores that follow the same steps because extensive training allows his employees to work faster.

Gary Gordon, president of Samuel Gordon Jewelers in Oklahoma City, Okla., relies on standard cost accounting. He adds the cost of materials, labor and overhead and keystones the result for the final price. For example:

$1,000 (materials)

+$1,200 (labor, 20 hours @ $60/hr.)

=$2,200

+ $720 (overhead, 60% of $1,200)

=$2,920

x 2 (keystone)

=$5,840 (final price)

Some jewelers, like some hairdressers, charge different rates depending on the complexity of the design and the skill required of the goldsmith working on the piece. At Jewel-Craft Inc., an Erlanger, Ky.-based trade shop that specializes in custom and repair work for retail jewelers, labor prices range from $40 to $60 an hour, depending on how specialized the piece (see story at left).

At Underwood’s in Arkansas, meanwhile, the labor charge for the top goldsmith is $75 an hour, less for others. But Craig Underwood cautions that prices have to be competitive within the market. “If you overcharge, you won’t stay in business,” he says. “It’s like real estate; no matter how much you pay for a beautiful condo, you’re not going to be able to rent it out for more than the market will bear.”

TO WAX OR NOT TO WAX

The general process of selling a custom piece doesn’t vary much from store to store. You find out what the customer wants, draw some possibilities, make a wax carving, cast it and finish it. But at what point — or points — do you call in the customer for approval? Craig Underwood in Fayetteville, Ark., feels comfortable going from color rendering to finished product without additional approval except when the customer has trouble visualizing a finished piece from the two-dimensional rendering.

Valerie Naifeh, the in-house designer at Samuel Gordon Jewelers in Oklahoma City, Okla., prefers that customers see the wax carving.

Matthew Trent takes it a step further — he even puts the stones into the wax and has the customer try it on for a final fitting.

Jewelers interviewed for this story say they rarely encounter customers who don’t like the end result, but it does happen. Occasionally, a customer asks to have a stone set lower or to have a matte finish added to the metal. And once in a while, a customer just doesn’t like the piece and loses interest.

CUSTOM WORK? SEND IT OUT!

Like people who prefer to pay a dry-cleaner rather than iron, some jewelers figure it’s much less hassle to pay someone else to do their repairs and custom manufacturing.

Max Davis is one. A former vice president in Zale’s Guild Division, Davis opened a diamond business 17 years ago in Sylvania, Ohio. When it comes to custom work, he’s been there and done that — he supervised a shop of four jewelers, four diamond setters and four watchmakers — but now he sends all his benchwork to Jewel-Craft Inc. of Erlanger, Ky., a 49-year old company that specializes in custom and repair work for retail jewelers. “Even with 12 people in my shop, there were still skills that nobody was really expert at,” he says. “Jewel-Craft has many specialists, the quality is excellent and the work is delivered on time.”It’s easier on him because he doesn’t have to keep an inventory of findings to show would-be customers and he doesn’t have to supervise bench jewelers and worry whether a job is being done well and on time.

There are hundreds of jewelry trade shops across the country, but Jewel-Craft is unique. It employs 85 people in a 23,000-sq.-ft. factory doing nothing but custom repair and manufacturing for retail jewelers. The company handles virtually any job, including stone cutting, pave setting and casting platinum. It also has the volume to justify a findings and stone inventory few jewelers would dare carry.

“Jewelers can’t take 10 or 12 hours to make a piece because they have so many other things to do,” says Gary Wesdorp, who with his brother Benet shares the presidency of Jewel-Craft. The company prides itself on having most custom jobs back to the jeweler within two weeks, often from the most minimal of sketches.