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.
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.