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Pricing Strategies - Considerations and My Strategy
Article © MAIL User: ChainOfBeauty
Conditions for Jewelry Prices
All jewelry prices (indeed, all prices) depend on five factors.
First, prices depend on three things that the jeweler can control:
- >type of materials
- >cost of materials,
- >cost of labor (dollars per hour x hours).
Second, the jewelry price depends on something the jeweler doesn’t control but can affect:
- perceived value (how much the buyer thinks the jewelry is worth).
Finally, the jewelry price depends on something the jeweler doesn’t control and can’t affect:
- market value range (the average price range for similar pieces).
The problem, therefore, is to find a way that considers all five conditions that affect price.
First, let’s look at each pricing factor, and then we’ll look at my new strategy for pricing chainmaille jewelry.
1. Type of Materials
This condition is fairly easy to understand. The type of wire, such as copper, sterling silver, gold, Argentium silver, has a great effect on the price of chainmaille jewelry. The more precious the metal type, the higher the cost of the jewelry. For example, a buyer will spend more on a sterling silver Byzantine bracelet than on a copper bracelet in the same design.
2. Cost of Materials
As a jeweler, you determine how much you are willing to spend on materials and where you will buy them. You can use low-cost materials, such as aluminum and brass, which lower your expenses and can lower the price. You can use higher-cost materials, such as sterling silver or gold-fill, which will raise the price. The price of higher cost materials doesn’t have as much variation as the price of lower cost materials.
You can also choose the quantities for your wire. Larger quantities may give you a price break, though you may end up with a lot more wire than you need, and until you make and sell something with the extra wire, you have to absorb the cost yourself. With higher cost materials, any price breaks for quantity are generally very slight and won’t have a noticeable effect on the cost of the materials in a single piece.
To make the most profit from your chainmaille jewelry, you want to keep materials cost as low as possible. Any savings in materials increases your profit margin.
(Profit margin = net profit / price. Example, a $125 bracelet made with $50 of materials yields = $75 net profit, so the profit margin is $75 / $125 = 0.6, or 60% profit margin. You will pay yourself, buy materials, reimburse equipment costs, etc. from the profit.)
3. Cost of Labor
How much do you want to make per hour? Will you be satisfied with $10/hour, or is $30/hour more acceptable to you.
Higher quality workmanship is worth more per hour than poor workmanship. If you work fast, but sloppily, you don’t deserve as much per hour. On the other hand, if you work more slowly but more carefully, your work deserves more per hour. This is the reason why an apprentice in any field makes less money than a more experienced, more masterful, workman.
Many home crafters, jewelry makers, etc. price their labor at $20 per hour. The problem they run into, however, is that the cost per hour does not directly reflect the quality of the work. It is almost arbitrary.
The solution, therefore, is to remove cost of labor from the price of the jewelry. Instead, consider the cost of labor as an expense after the price of the jewelry. After all, the buyer doesn’t care how long it took you to make a piece of chainmaille jewelry. The buyer will consider the quality of the piece, the type of material, the price, and the perceived value.
(The buyer might be impressed by the time needed to make a piece, but your time doesn’t make the piece more attractive to the buyer, meaning it doesn’t increase the likelihood of selling the piece.)
Profit is how much you earn after paying for the materials. Once you determine the price and your profit, you need to ask yourself whether or not making the jewelry is worth your time. For example, if your materials cost $50 and the price is $125, you made $75 profit. Now, if you needed 6 hours to make the chainmaille jewelry, you earned $12.50 per hour. Is your time worth only $12.50? If not, make something else. (Remember, you also need to buy new supplies and reimburse the cost of the equipment, which means your actual income is lower.)
4. Perceived Value
The perceived value is the amount of pleasure the buyer expects to feel by having your jewelry. Whether consciously or unconsciously, the buyer places a dollar value on that pleasure. The buyer thinks, “How much money would I be willing to spend to have the pleasure I expect to receive?”
If the value of the pleasure is less than the price of the jewelry, the buyer won’t buy. Basically, the buyer receives more pleasure from having the money than he expects to feel by having the jewelry. The buyer thinks, “I’d rather have the money than the jewelry.”
On the other hand, if the perceived value equals or is greater than the price of the jewelry, the buyer will buy. The buyer would rather have the jewelry than the cash because the jewelry brings more pleasure than the money or more pleasure than something else the buyer could buy for the same amount. For example, let’s say you’re selling a bracelet for $125 and the buyer expects to receive $150 of pleasure by owning the bracelet. In this case, the buyer will buy. The buyer thinks, “I’d rather have the jewelry than the money.”
You don’t have complete control over the perceived value, but you can affect it. You can raise the perceived value, which means you can set a higher price. You do this by many methods, including
- improving the quality of the workmanship,
- using higher quality materials,
- improving the jewelry display, such as by using models and taking great photographs, and
- providing information about the craftsmanship, materials, design, fashion, unique attributes, etc.
5. Market Value Range
Finally, you have to consider the market value range, or, more specifically, the typical price range of similar jewelry in the same sales context.
The sales context is the location and type of place where you’re trying to sell your jewelry. For example, a flea market is a different context than a downtown jewelry store. People are willing to pay different prices in different contexts, and different contexts have different types of buyers.
If you’re higher than the market value but have the same perceived value as similar pieces, buyers will go to other sellers. If you’re lower than the market value range, some buyers will think they are getting a great deal, but other buyers will be suspicious of the quality and the claims you make about the jewelry.
Unless you are a major seller with a very strong reputation for product quality and service, you will need to stay within the market value range. You are a “price taker,” not a “price maker.”
For most of us, the only way to make sales of jewelry priced above the market value range is to raise the perceived value. If you can make the buyers think the jewelry will give more pleasure than your competitors’ jewelry will, the buyer will be willing to spend more for your jewelry.
One important factor: Be honest about the quality of your jewelry compared to similar items. You won’t make sales if you price your jewelry the same as higher quality pieces. Instead, consider only the prices of similar quality items. If you want to use prices of higher quality jewelry, improve your quality.
My Pricing Strategies
My Former Pricing Strategy
This brings us back to the initial question: How to set a price for chainmaille jewelry?
Until now, I have been using only perceived value and market value. This was a safe way to price the jewelry because these conditions are non-negotiable. In fact, I depended mostly on researching the market value and then adjusting my price within the price range depending on how the quality of my pieces compared to other jewelry in the price range. This strategy works just fine.
On the other hand, this strategy doesn’t consider the actual cost of the materials! For example, I might price a 7.5-inch bracelet the same as an 8.0-inch bracelet, even though the longer bracelet is more expensive to make! If I’m using low-cost materials, the difference may be too slight to matter, but if I’m using higher cost materials, it can matter a lot.
For example, an extra 0.125 ounce in a 14/20 gold fill bracelet may add $5.90 to my expenses, so I’ll make $5.90 less profit. Not a lot, you say? If I do this 10 times, I lose $59. I don’t want to lose $59.
This strategy also doesn’t consider changes in metal markets. If the price of silver increases, the cost of wire increases. Unless I raise my price, I lose money. I don’t know how much other sellers paid for their materials when they bought it, only how much I have to pay now. My price should reflect the cost of wire when I buy it.
My New Pricing Strategy
Finally, here we are at my new strategy. I was at a jewelry, stone, and fossil expo recently, and I saw a vendor selling silver chains by the gram. She claimed her normal price was $7 per gram, but lowered it to $6 per gram for the expo. I saw one person after another ask about prices and then leave. These were people who were interested in buying a chain but gave the chains a lower perceived value than price of the chain.
Even so, this started me thinking about the relationship between material weight and jewelry price, and the more I thought about it and explored it, the more I liked it. Heavier pieces have higher materials costs. Pieces made with lightweight materials but are longer or more dense also take longer to make and are, also, heavier than shorter, simpler pieces. Eventually, I came up with this scheme.
I take the price per ounce of the raw wire, divide it by a divisor, and get a price per gram. I use the price per gram to determine the final price of the jewelry.
- Base materials & plated materials: (price per ounce) / 0.5 = price per gram
- •Sterling silver: (price per regular ounce*) / 5.5 = price per gram
- 14K Gold Fill: (price per regular ounce*) / 6.0 = price per gram
*Not troy ounces.
Here’s the entire process for using this strategy, with an example of a sterling silver bracelet weighing 0.75 ounces.
1. Get the cost per ounces when you buy the materials.
(example: Silver wire from my supplier today = $27.30 / troy ounce, $24.89 / regular ounce)
2. Divide price per regular ounce by the divisor to get the price per gram.
(example $24.89 / 5.5 = $4.52 per gram)
3. Multiply weight in regular ounces by 28.35 to get the number of grams.
(example: 0.75 ounce x 28.35= 21.26 grams)
4. Multiply grams by price per gram.
(example: 21.26 grams x $4.52 = $96.11)
5. Round to nearest $5 for the price.
(example: $99.11 rounds to $95.00 price)
For the sake of comparisons, here are prices for 0.75-ounce bracelets in other materials:
- Silver plated bracelet, 0.75 ounces: $40
- Sterling silver bracelet, 0.75 ounces: $95
- Gold fill bracelet: $170
This pricing strategy considers the actual cost of the materials and places the jewelry in the market value range. If the metal market changes (and it does, daily), the price of any piece made from wire purchased at the new wire cost will also change, if the change affects the final price rounding. Thus, I keep the same profit margin.
I built an Excel calculator to do all these calculations for me (because I’m too lazy to do it by hand every time). I enter current price per ounce for the wire and the weight of the piece. The spreadsheet does the rest. I can also enter the labor hours and other costs to look at my rate per hour, company profit, and personal income.
If I change sales contexts, start wholesaling rather than selling directly, or change the quality (such as by soldering the rings), I’ll change the divisors, for a different price per gram. For now, though, this works very nicely for me!
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