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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 dgeller@bellsouth.net.

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

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David Geller

Why David Geller Says You Should Sell Lab-Grown Diamonds

You’re a merchant, so sell the customer what they want.

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ONE OF THE JEWELER pages on Facebook has been discussing whether a store should stock and sell lab-grown diamonds. The dad says no, while the millennial son says, “I think we should try it.” The reader vote is split about 50/50.

Can we talk about making a living here for a moment? And selling consumers what they want?

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Customers want to know their options and make their own decisions. Be their personal shopper.

I started in 1974 as a trade shop. I used to do work for a store at our mall, Wellington Jewels. I sized the gold rings they sold and set stones.

What stones? Strontium titanate. It’s a diamond simulant that has colors like an opal. Hardness on Mohs’ scale? About 5.5! But sparkle, oooh weeee!

The store was mostly black walls and showcases, with bright lights to make the stones pop. They made great money, and these are diamond look-alikes with the hardness of an opal. The mountings were 14K gold with real melee diamonds. They didn’t sell much fashion, which I told them was crazy, because a woman can only buy so many engagement rings.

I became friendly with the store manager and she agreed. So I ordered a dozen at a time in fashion mountings from a catalog, furnished the mountings and diamond melee, and she gave me center stones, which I set. They’d sell most of each dozen I gave them within five weeks.

So let’s talk profits on this product. All merchandise was quadruple markup.

They gave a lifetime warranty on these stones. If the stone scratched or chipped or fell out, they’d replace them for 50 percent of the price (so they still made keystone).

This was junk compared to lab-created diamonds. Remember: a lab-created diamond will last as long as the human does.

What about resale value? Well, they can’t get their money out of what they spent on your natural diamond, so try lab-created, make a better margin and keep that young person from buying it someplace else.

When you quote a price to a customer for anything, you may be thinking, “They aren’t talking. Maybe I should come down on the price. OMG I need to make payroll this Friday.”

They may be thinking: “Darn, my student loan note is due at the end of the month. Maybe I should opt for a lab-created diamond. I can’t tell the difference and we need to save for a house.”

Be their personal shopper, make a customer happy and make some money!

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David Geller

How Geller’s Blue Book Came Out of Abject Failure

David Geller’s failure in business led to success as a retailer and later as a consultant.

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WHEN I STARTED MY shop in 1974, there was no “Geller Book” for pricing repairs and custom. You relied upon your best guess, copying other people’s price lists or calling around to find an average amount to charge.

Although I didn’t know how much to charge, I quickly learned how much I would have to pay for salaries, rent, findings, advertising, etc.

By 1978 or so, my accountant just reconciled the books. He couldn’t help at all with my problem of making money. I had difficulty paying bills on time and paying myself a good wage.

By 1986, we had a thriving business doing repairs and custom. We had 16 employees, but still we were always behind the 8-ball. We did $830,000 in business, 75 percent from the shop, but we owed $250,000 in accounts payable, $65,000 to the IRS for payroll taxes and another $25,000 to the state for the same thing.

On Christmas Eve, I fired half of the employees, and during the following week after paying whomever I could, we still had the same amount of debt.

Don’t tell me about your bad day.

January 2nd, we opened up with half the number of employees and $125 in the checking account.

Don’t tell me how you had a bad month.

Summer of 1987, the IRS put a lien on both my home and the store and twice wiped out the balance of our business checking account to try to pay our payroll taxes. So, to ward off the inevitable, I paid an attorney $5,000 to help me declare bankruptcy.

Don’t tell me you had a bad year.

The next month, a diamond setter friend sent me his accountant. This guy had been an accountant, gave it up, became a watchmaker for 7 years, then went back to doing accounting.

This was the first accountant I had hired who knew how to make money with his hands.

First thing he did was work out a payment plan with the IRS and the state. So I didn’t have to follow through with the bankruptcy, but the attorney who had done nothing kept his $5,000 deposit.

Next thing the accountant did was teach me how to price labor. Pricing a lobster claw is easy. Labor is tricky, so he had me do something many of you would never do: I stopped paying the jewelers a guaranteed salary. I paid them 100 percent commission based on retail labor. That fixed my cost, and now I knew my labor cost to the penny and I could mark that up.

If the commission on any job was too low for the jewelers, then we raised the retail price so they would be paid correctly. This philosophy led me to write our first 250-page price book for our store in 1989.

By 1991, I put the sales staff on 100 percent commission as well. Both the jewelers and salespeople’s earnings increased, as did productivity and profits. We finally paid everyone off and became cash flow positive and profitable.

Years later, our top salesperson asked to buy the store, and meanwhile I was being prompted by the Scull consulting group to help other jewelers. So, I created Geller’s Blue Book to Jewelry Repair and Design and went to work helping my fellow jewelers be profitable in the shop. The store succeeds and thrives today.

Tough spot? You betcha. All of what transpired was scary and a huge change in business practice. But, the next step was liquidation by the IRS of my home and business, so what did I have to lose?

What would it take to get you to change your ways?

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David Geller

Here’s Why Coin Dealers Make More Profit Than Jewelers

It has a lot to do with a willingness to move quickly.

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WHO’S BETTER AT BUSINESS: a coin/bullion dealer or a jewelry store owner?

Odd question, right?

I recently had a conversation with a store owner whose operation did $3 million in total sales, which were divided into two income streams: $1.4 million in fine jewelry sales, and $1.6 million in coin and bullion sales.

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I asked this store owner a few questions, and his answers were intriguing.

“What’s your margin in jewelry sales?”

“About 45 percent.”

“What’s the margin selling bullion and coins?”

“Anywhere from 8 to 12 percent.”

“OMG, really? That low?”

“Yep, you buy it, turn it fast and make a quick 8 to 12 percent profit.”

“When it comes to coins and bullion, when do you consider them old?”

“Two weeks. At such low margins, we can’t hang onto them. If a Canadian Maple Leaf coin stays here for two weeks, we’ll melt the sucker!”

I did not ask what percent of inventory is scrapped versus sold. But let’s assume one-third is sold a tad above cost and the rest at break even, and see what kind of money we could make if that’s all we did.

Let’s average the profit to an even 10 percent. Calculating one-third of 52 weeks means we will make a 10 percent profit 17 times a year. So say we buy a one-ounce coin for $1,300 and make 10 percent profit ($130). $130 made 17 times a year means we make $2,210 in gross profit.

Jewelry has its own “numbers” like coins/bullion do, just different ways of counting. So, similar to the coin example, let’s start with a ring that costs $1,300. Let’s say that $1,300 ring after a year sells for $2,600 and we make a gross profit of $1,300.

The coin dealer is doing better by almost twice as much, even though he only made 10 percent per sale and the jeweler made 50 percent.

Most jewelers look at the gross margin only. “Yeah, I made keystone.” But they’re not considering the turn ratio. And what if it took more time — like, say, two years? When you wait that long, the bad stuff starts showing up as debt. Your accounts payable go way up, as does credit card debt.

A coin dealer is better in business because he is forced to liquidate quickly. They think in terms of money, whereas jewelers think in terms of “it’s gold and diamonds; it will be in good shape and salable long after I’m in the ground.”

Jewelry is old in 12 months. Coins are old in two weeks.

Jewelers just shove their old crap to the left side of the case and stuff more crap in the case. I had a jeweler friend to whom I explained this, and he said he had a buddy who owned a furniture store. The furniture store guy said he never had a problem with old inventory. He said, “Where in the hell am I going to put extra beds???”

Learn something from the coin/bullion dealer. The faster you turn the item, the better for your cash flow.

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