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David Geller

David Geller: The Long View

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David Geller says jewelers too often look only at the short term when determining the success of an advertising campaign

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[h3]The Long View[/h3]

Sure, we all want to get value for our advertising investment. But before you deem your latest campaign a failure, there are two questions that you need to ask yourself:

[dropcap cap=1.] What does it cost to get someone in the store who’s never shopped here before?

In Chapter Six of The 33 Ruthless Rules of Local Advertising, author Michael Corbett leads you through the calculations. It’s pretty straightforward. If you spent $5,000 on an advertising campaign and it brought you an additional 200 people then each person cost you $25.[/dropcap]

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[dropcap cap=2.] The second number to look at in regard to this customer is their “lifetime” value. By this we mean, “Now that I paid $25 to bring them in, how much will they spend in our store in addition to their very first purchase?”[/dropcap]

You just might find it advantageous to spend more to get them in the door because of their future purchases and referrals.

Most everyone has seen Columbia Music’s famous “Buy four CDs for a penny” ads. I forget the actual number, but if my memory serves me correctly Columbia House spends about $40 a customer to get someone to sign up for a penny CD set. Why spend $40 to get someone to spend a penny?

Because over the next 18 months the average customer will spend $185 … for excellent gross profits, even after the $40 advertising expense.

[inset side=right]The first thing a customer did with us was a simple repair. Our average repair was $65.[/inset] How do you track an ad to see how you’re doing? Well, this is what we did in our store many years ago. We had started a heavy newspaper campaign in Saturday’s paper, 52 weeks a year. It really drove up business. This is what we found, and you can see if it sounds like your store.

The first thing a customer did with us was a simple repair. Our average repair was $65. Then we noticed that after they picked up the repair and felt good about us they came back again with one of their more valuable repairs.

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Then about six to eight months later many of them would come back into the store and have something custom-made. That custom sale had an average labor sale (without materials) of $750. Some would have another item made a few months later.

We had figured our cost to acquire a customer was $11 and I was told that was low. I believe we had a low figure because of the amount of referrals we received from the satisfied customers.

So even though the price you paid for your advertising might in the short-term be twice as much as the profit you make from new customer purchases, keep in mind what they could bring in over their lifetime in total. Car dealers figure the value of a lifetime customer at around $200,000. That’s six to 10 cars if they treat you right and get you referrals.

You should also take into account two more points. One is that 20 percent of customers move away or die. You have to replace them. Secondly, it’s about five times cheaper to get an old customer to revisit your store than to get a new one. So use direct mail to keep in contact with your customer list. Don’t ignore them. It costs too much to bring in a new client and your competition is always looking to steal your customers. Keep in touch.

 

David Geller is an author and consultant to jewelry-store owners on store management and profitability. E-mail him at dgeller@bellsouth.net.

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[span class=note]This story is from the May 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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