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David Geller

David Geller: Fair Incentive

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Getting your jeweler on a commission plan makes sense, writes David Geller … if you make it profitable for both parties.

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[h3]Fair Incentive[/h3]

[dropcap cap=S]o, you want to put your jewelers on commission? The purpose of placing your jewelers on commission is not punishment. It’s to improve your shop profits, and to allow a skilled, motivated jeweler to earn a better living. When you first mention the idea of working on commission to a bench jeweler, they’ll inevitably assume they will be making “sweatshop wages”. Nothing could be further from the truth.[/dropcap]

The storeowner must offer a commission system that is fair for the jeweler. If it’s not, you could very easily lose a valuable employee. Here’s how to make it work for both of you:

[dropcap cap=1.] There must be more than enough work to keep the jeweler busy. If there is a lack of work, it is not fair to pay commission, as there would be no pay when it’s slow.[/dropcap]

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[dropcap cap=2.] The jeweler shouldn’t be interrupted. Okay, while we can’t entirely avoid having the jeweler being asked questions — his expertise is an important asset to your store — your other staff should be trained to minimize interruptions. And jewelers should not have to wait on customers, call vendors for parts, etc. If you can reduce or eliminate these “pay robbers”, then your jeweler should do well on commission.[/dropcap]

[dropcap cap=3.] You must charge the correct prices. You’re going to give the jeweler a percentage of the retail labor charge. If that percentage doesn’t pay well, you’re under-charging. Stop that now![/dropcap]

[inset side=right]If your jeweler does the work plus polishing, you should pay 26 percent of the labor price.[/inset]In our store, we developed our jewelers’ commission system with the help of an accountant who had been a watchmaker (and still is today). This was the first accountant I had ever hired that could help me with pricing. The breakthrough came when he asked me, “What percentage of store sales goes to salaries?” I didn’t know and he told me the typical range for a jewelry store was 20 to 25 percent. So we chose a number in the middle and we paid 22 percent of every labor dollar to the bench jeweler. Our commission system was off and running.

We have always had a separate polisher so our jewelers don’t do the polishing. If your jeweler does the work plus polishing, you should pay 26 percent of the labor price. So if you charged $10 to do something, the jeweler gets $2.60.

Why 26 percent? Simple — once you add in matching FICA, Medicare, workers comp, health insurance, etc. — you will have paid a total of 33 percent. And you are looking for a three-time markup on repairs, aren’t you?

Once we started the system, our profits from the shop soared, as did productivity. Before commission, we kept 350 jobs in the shop. It took eight weeks to make a ring and four weeks to size it. After? We had 450 jobs in the shop, took six weeks to make a ring and two weeks to size it.

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But many of our jewelers complained that certain jobs didn’t pay well. Why? We used “comparative pricing”. You know, calling the store down the street to see what they charged. We decided that was crazy because repairs aren’t price-sensitive, they are trust-sensitive.

So we bought each jeweler a time clock and did a time study. And we found that our jewelers were right — for some procedures, we weren’t paying them enough. For certain procedures, we were charging $10 and paying the jeweler $2.60. But the time study showed they should have been making $3.50.  

So if we should be paying the jeweler $3.50, what should we charge the customer? Simple. Divide $3.50 by .26 (to ensure the jeweler gets 26 percent of the total price) and you get $13.50.

[inset side=left]And we found that our jewelers were right — for some procedures, we weren’t paying them enough.[/inset]In our book, we carried this further as we didn’t want to pay the jeweler a percentage of the finding. For example, we charged $47 for a 2mm round 14k barrel clasp furnished and soldered to the customer’s chain. It takes two solders to install it and that’s what we pay the jeweler’s commission on. To solder a jump ring closed, we charge $12 per solder. Therefore the installation of the clasp is 2 x $12 = $24. The jeweler gets 26 percent of the $24 soldering fee, or $6.24. With matching taxes, our cost for labor is approximately $7.80, or one-third of the $24. So in our price book we laid out the retail for the clasp and a coded column for the jeweler’s commission.

Under our commission system, our jewelers earned $30,000 to $60,000 the last year I owned the company. In most stores I’ve helped implement this, the store’s jewelers get more money, and the store’s profits go up. There are a few situations where a jeweler’s pay might decrease. Assuming the jeweler isn’t bothered a lot and the prices charged are correct, this probably means you have a slow jeweler. In this case, you have several options:

[dropcap cap=1.] Raise your prices so the amount of money the jeweler earns through commission increases. Your gross profit will also increase.[/dropcap]

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[dropcap cap=2.] Increase the percentage the jeweler receives. At 26 percent, your cost is about 33 percent. If you paid the jeweler 33 percent, your cost (with benefits) would be approximately 42 percent, a little less than a 2.5 markup. I’m not in favor of this. Shop work needs more profits to pay for mistakes.[/dropcap]

[dropcap cap=3.] Train the jeweler to be more productive. Send your jeweler to a five-day course to brush up on advanced setting and repair techniques. This will quickly be repaid in increased profits.[/dropcap]

[dropcap cap=4.] Replace the jeweler. A last resort … but hey, would you keep an underperforming salesperson?[/dropcap]

It took me more than two years just to put our pay and sales formulas in book form to be used by the staff. Once we started the program, some jewelers left. But the ones who stayed increased their incomes by 50 percent in six months.  
It made my company profitable almost immediately.  

Yes, we did have to keep a closer eye on quality … as some of our jewelers liked to rush. But I’ll take more inspections while being profitable over unprofitable “perfect work” any day of the week.

It should be a win/win situation for the store and the bench jeweler.

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at [email protected].

[span class=note]This story is from the July 2003 edition of INSTORE[/span]

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