David Geller: Custom Profit

CUSTOM DESIGNING HAS the highest rate of return of almost anything in your store. Let’s compare it to selling product, and I will make some assumptions here for the sake of the example.

If your average product sale is $350 from the case, how much do you have to keep in inventory to make that sale?

If your average product sale is $350 from the case, how much do you have to keep in inventory to make that sale?

Let’s say you have $500,000 in inventory. So to sell $350 you have to own half a million dollars. Sheesh!

Now let’s assume when you custom design a ring for a customer the average selling price is $850. How much inventory do you have to have to sell that $850 item?

Usually less than $5,000. Most stores don’t keep much gold and melee on hand, they call and order the findings, buy gold to cast the ring, etc. What other costs are there to be able to design a ring? The jeweler’s pay. So to sell an $850 ring takes about $5,000 of material and one week’s pay for a jeweler. If he makes $20 an hour then your “inventory” in the shop is $5,000 + $800 = $5,800 to have on hand on any given week to sell an $850 ring. Big difference!

There’s a lot more profit to be had in selling custom than in product sales. Typical product today gives a 46 percent margin while custom easily provides a 55-63 percent margin. There’s virtually no inventory overhead, and the dollars taken in usually are double those of the average product sale.

HOW DO YOU SELL IT?

My suggestion is to use a pad and paper or you can order the custom design sheets that we used from Impact Manufacturing. Reach them at (800) 543-4264 or www.isiprint.com. Ask for the Geller forms.

On the sheet of paper draw your design and then underneath make two columns. Don’t title them, but we’ll put labor costs and description in one column and products and materials in the other. Let’s use an example of custom-making a shadow wedding band to match the customer’s engagement ring and bead-set 10 diamonds in the ring. Your sheet might look like this:

You would write this down and chat to yourself, finding the prices in your price book. Then go over what you’ll do to make the ring, but do not repeat the dollars per step. Your customer can read! Then point to the $1,001 and say “and that’s all it will be. Here, let me get your finger size.” Then start writing up the job envelope.

The two columns show value. It’s not a $1,000 gold-and-diamond ring. It’s $528 of gold and diamonds and only $473 in labor to completely make a ring that is just for her. Each line item shows “a little here and a little there.”

If you get some resistance to price, it could be because they thought it would be about the same price as buying a ring. Your job is to educate them in the two major differences. Tell them this:

1. “When jewelry is manufactured, production is the name of the game. They will make 100 ring bottoms at one time; another stage is setting 200 diamonds in a day, then polishing all of this at one time. But to make just one ring is a one-stage-at-a-time procedure. Our jeweler will only work on your wedding ring to be sure it’s perfect. He also has a higher skill level than the manufacturers. Then when he sets the stones he won’t work on anything else but yours. He’s very meticulous in polishing, and your engagement ring will be refinished at the same time so they both match in shine. You’re paying the same for diamonds and gold and just a little extra for the labor to make it.”
   “When jewelry is manufactured, production is the name of the game.
2. “It takes a lot longer to make a ring just for you, but enjoyment is the key. Besides, six months from now you’ll forget the price and only look down at your hand and love the ring that is a perfect fit for your engagement ring. In fact, it’s the only way to get it to look just right. We do this a lot for our clients. A lot!”
3. If you have a problem and feel like you have to discount, don’t discount the labor, only the material and say: “As you know, we can’t discount the labor, but I can give you 15 percent off of the materials.” (“As you know” is key!) Fifteen percent off the materials is $79.20. Nice discount for the customer. Write the $79.20 under the $1,001 and write the total of $921.80 and circle it.

But $79.20 is only a 7.9 percent discount on the total job!

Yes, you can discount the material, it has a turn of a whopping 26! Why? Because you buy it on Monday, get it on Wednesday; make the ring and the following weekend the lady picks it up. Buy/sell/buy/sell — every two weeks. Turn of 26. If you’re lucky, showcase sales have a turn of 1.

But labor doesn’t have a turn. If you discount the cost of the jeweler, she has to now work faster or work two hours off the clock.

Don’t be afraid to charge correctly. I never advocate gouging, only that your store gets better than keystone on the total shop after a year, including all freebies.

CAN IT BE DONE?

I sold my store in January 2000. The year before, here were our averages as I mentioned what yours might be above:

• Average product sale: $400
• Average repair sale: $65
• Average custom design using the customer’s gold and diamonds: $700
• Average custom design using our materials: $1,550

You can do this.

This story is from the September 2007 edition of INSTORE.