David Brown: Setting Selling Prices for Maximum Profit
It’s not just about markup; it’s about perceived value.
BY DAVID BROWN
Published in the April 2014 issue.
It always amazes me how much extra profit a jeweler can make by adding a few dollars (or even cents) to each item they sell during a year. We often run a report that shows us the potential profit that a store can make if it rounds off its prices to the appropriate price point. Taking into consideration all inventory, this profit may run into thousands of dollars.
Despite this, it is difficult to convince store owners to maximize their profitability on each product. Often, the only barrier to increasing profit is the mindset of the store owners: They put a glass ceiling on what they will charge.
| Customers do not consider your wholesale price when making their decision. They are interested only in the value of the item. |
Most retailers set their retail price by adding to the cost. This is a good starting point, it helps you know how much you need to charge to make a profit. But your customers do not consider your wholesale price when making their purchasing decision. They are interested only in the value of the item they are buying.
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Consider that your vendor charges you on the basis of overheads and inputs, and on the level of profit he wants to make for himself. There may be two rings made by the same vendor with similar materials, yet one may outsell the other. Should they be sold at the same price?
TO DETERMINE THE SELLING PRICE:
1. Get away from a cost-plus approach. Ask your staff what they feel an item should sell for when looking to buy it. Don’t tell them its wholesale price. You’d be surprised at the range of responses you’ll receive, and from people who understand jewelry! Customers look at your jewelry in the same way, and that is how you should view it too. Consider the difference between the tired old pendant and the popular style that outsells it. They cost you the same amount of money, but they are valued differently by the public. Determine your price on the basis of what you think it should sell for, and only then compare it with cost to see that you are earning a sufficient profit.
2. Let someone else set your prices. If setting the price is an issue for you, assign it to someone on staff who can do the job unemotionally and objectively. Don’t think that you are overcharging the customer. Customers pay only what they think an item is worth. If they don’t want to buy it, they won’t. Let the customer decide whether the price is fair.
3. Revisit the prices on your best-selling items each time you reorder them. If you have a new piece that sold quickly at a high price, you’ve learned the following things: A. The public approves it. B. There was little resistance in terms of price. Next time, try to sell it at a higher price. You may be thinking: What if it doesn’t sell? Then you just have to bring it back to the original price after six weeks. You only lose 40 days trying to introduce a new price!
