Pricing custom work
The pricing system for custom work described in the February issue [page 118] is a good once-a-year exercise. I have used two other methods that are quicker and create a more effective price – the comparative method and the relationship method.
First some legal background. The Fair Labor Standards Act requires workers to be paid by the hour with time and a half for hours worked in excess of forty. Virtually all goldsmiths are governed by this federal law, enforced by the Department of Labor, Wage and Hour division. Getting around this law by treating workers improperly as “independent contractors” or putting workers on “piece work” or “100% commission” is called a “sweat shop” and is a favorite subject of some TV news programs.
The comparative method is very simple. Call around to other occupations similar to goldsmithing and see what they are charging for an hour of labor. A very good source is automobile service departments, because they can charge and pay workers by the hourly flat rate system. A large business capable of employing an accountant is recommended over the corner gas station.
A variation on this method is to go to the Department of Labor, Division of Labor Statistics, on the Internet and look up the average cost per hour paid to workers in a comparable category. I use precision production, craft and repair in table 10. This table lists a total hourly cost of $22.10 per hour for this category of worker and includes costs of vacation and other benefits ($14.34 for sales occupations, sorry guys). If you keystone this cost you will be at $44.20, which will be close to what you find when you call around to other businesses. This will be the wholesale cost of an hour of labor.
Once you have established the cost of an hour of labor, divide it by what you charge to give yourself the length of time you need to accomplish a task. For example, if I charge $9 to size down a ring (wholesale) and my cost of labor is $45, I have .2 of an hour (9/45=.2) or 12 minutes to finish everything having to do with the job of sizing the ring down. Go through your price list this way and see if the times you come up with seem reasonable.
The relationship method is also easy to use. When I work at my bench, I am producing income for my employer. If all I do is size down rings at $20 each and I can do about five per hour, then I am producing $100 per productive hour. Another way to think of this is that I do $600 of work in an 8-hour day – 6 productive (chargeable) hours and 2 nonproductive but work-related hours. Since sizing rings down is the least skilled job I do, the lowest retail price for my work should be $100 per hour. Custom work requires the goldsmith to have a much higher skill level than sizing rings. This higher skill level should be reflected in the relationship to the minimum hourly price. When pricing custom work, the value (or salability) of the design should be taken into consideration as well as the skill level of the goldsmith.
Following the relationship method and not pricing custom work under simple ring sizing will result in a minimum price for the labor in a ring of about $550 to $650. This price is higher than the market is likely to bear. Therefore, I recommend the following three-step process:
First, try to sell your inventory (never price custom or special-order merchandise below your inventory).
If the customer cannot be satisfied with an item you already own, then as a second option, special order from a manufacturer. There is no way to make jewelry yourself for less money than you can buy it from a manufacturer.
As a final option, do a custom-designed piece, try to sell the main stone and include as many side stones as possible because this is where you will be making a profit.
Three final comments.
First, it is impossible to make more money by working overtime. Overtime costs 1.5 times regular time, by law. Unless you have figured into your hourly charge an amount to cover the average overtime you are going to work, you will not be making a profit.
Second, back when I was a union steward, we had a saying, “I give them six good hours.” We were referring to productivity; 75% efficiency or six chargeable hours out of eight is probably the best anyone can do. It usually takes 15 minutes to get started in the morning and the same to clean up and put things away at night. Many states require 10- or 15-minute breaks in the morning and evening. There is always paperwork, findings inventory and orders, confusion about jobs, customers who want to speak to the goldsmith, telephone calls, occasional rework and times when there just isn’t any work. A goldsmith who has to walk outside to smoke can never be 50% productive.
Third, when we called around asking the hourly rate charged by other businesses in similar occupations, we should have asked how much they charged for a similar task. Changing the oil in your car is similar to sizing a ring. The worker is nowhere near as skilled as a goldsmith, but it takes him about as much time as sizing a ring and uses about the same cost in materials. I pay $30 every few months to have the oil changed in my car, and the consuming public accepts that value.
Managers in the jewelry business need to increase the perceived value of our work. The Jewelers of America jeweler certification program is a big step in increasing the perception of value to the consumer.
James Britton, GG, ISA St. Paul, Minn. III