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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

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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David Geller

Why You Should Never Discount Your Shop Labor

It doesn’t have “turn”; it only has “time.”

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YOU CAN DISCOUNT merchandise, whether stock or special-ordered (like parts to custom make a ring) because merchandise has turn.

But discounting labor is different. Labor doesn’t have turn, it has time.

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If you discount inventory, you can still do well if you sell it many times a year. Labor, on the other hand, can’t be sold many times a minute or hour. If you charge $100 to do something in an hour, you have your income of $100 and whatever you or the jeweler is paid is the cost for that hour.

If you discount that $100 by 20 percent to $80, your profit margin percentage decreases and you can’t make it back unless you:

1. Do the same job 20 percent faster.

2. Reduce the jeweler’s pay by 20 percent.

Neither one is going to happen, and we both know it. Instead, make it a policy never to discount labor. Here’s how you do it.

When quoting a custom job, break the pricing down into two columns: “Material” and “Labor.” List the individual diamonds, gold casting grain, and gemstones under “Material” and add that up in the first column. Under the “Labor” column. list your CAD/custom fees, setting, and engraving heads and add them up.

Now you have a total of material and total of labor.

As I mentioned above, material has turn. Let’s say you get an order for a custom ring on the first day of the month and deliver it on the last day of the month. Do that every month, and these items you specially ordered have a turn of 12. With such fast turn, you can discount material. But you can’t work any faster, so don’t discount the labor.

Here is how to present the price if the customer is resistant. Let’s assume material is $1,500 and labor is $1,200 (total = $2,700). You’ll have three prices on the sheet easily visible:

Material $1,500.00 | Labor $1,200.00 | Total: $2,700.00

You give this to the client. If they resist, you may respond, “As you know, we can’t discount labor, but maybe I can give you a small discount on the diamonds and gold.”

Why “as you know?” Because everyone knows that the plumber, electrician, car mechanic and appliance repairman don’t discount their labor.

If you discounted the $2,700 by 20 percent, you’d lose $540. By discounting the material only by 20 percent, you give away $300 but make it up in turn, keeping $240 more in labor.

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David Geller

Why Taking Another Day Off Could Help More Than It Hurts

Cutting your work week to four days could ease your mind while maintaining your bottom line.

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IF YOU’RE LIKE ME, you’re a workaholic. Some just love their work; others have nothing else to do.

When I owned a store, I always worked six days. Even though the store was closed on Mondays, the shop was working on Monday. We did try a four-day work week in the beginning. The reason was selfish. When we started in 1974, we were open on Saturdays. With no kids, I had a hobby: remote control airplanes. Had to do home chores on Saturday so I could fly on Sundays.

At the time, I had six employees and we were open five days, but all employees worked four days a week, 10 hours a day (7 a.m.-6 p.m.). Admittedly, it was tough getting people to work on time at 7 a.m.

There was one less day of breaks and lunches. The jewelers were more productive and enjoyed having three days off. We rotated, and every other weekend, they would have three days off in a row (otherwise, they had two days off together and one day off in the middle). The schedule stayed that way until we moved to a larger shopping center and we went to five 8-hour days. Don’t remember why.

What about the owner working four days? You are the boss, aren’t you? When I started creating my price guide, I took a day off from the store weekly and worked at home. Still working, but uninterrupted. Got a lot done.

Why won’t most store owners shorten their work week?

I know because I was a culprit.

You might make most of the store sales and figure that if you’re not there, sales will drop. Or maybe you don’t trust your staff. Or maybe you wouldn’t know what to do with yourself.

Before selling my store, other jewelers asked me to go to their stores to help them, and I was also speaking at state associations. I was absent a lot. What I learned from being away from the store was this: given the opportunity, the staff would step up to the plate and do a great job. We had store meetings bi-monthly, so the staff was already trained. By letting them take over, they learn even more and are eager to earn your trust.

Although sometimes I didn’t like a decision they made, it all worked out. It gave me the freedom to “think” and do better.

Many of the most successful stores I have visited are owners who “let go” and don’t micro-manage everything. Trying taking off during the week on your slowest day and see what that does for you for 30 days. You’ll be amazed.

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