Chapter 2
From Fee to Shining Fee
A story is told about the early years of the Ford Motor Company. Shortly after the assembly line was up and running one of the machines broke down. The company who made the machine was called, and the owner himself came and repaired the machine. The Ford Motor Company received a bill for $10,000 to fix the machine. Henry Ford called the owner and told him his bill was outrageous.
Ten Thousand Dollars was a ridiculous fee for fifteen minutes of tinkering. The machine company owner calmed Henry Ford down and told him he would correct the bill. A few days later Henry Ford received the following bill:
| 15 minutes of tinkering | $5 |
| Knowing where to tinker | $9,995 |
| TOTAL | $10,000 |
Henry Ford paid the bill.
Often in the jewelry industry, we only charge for the tinkering (and many times not enough for this). We miss out on the greater opportunity to charge for knowing how.
Most jewelry stores can significantly increase the profits in their shops by adjusting the prices they charge. In most stores, very little thought has been given to the prices they charge. Pricing in the shop is primarily based on what has been charged in the past. If any increases are deemed necessary, an across the board increase is given.
Sometimes, a little more effort is put into a price increase. Employees will call all the stores in town, and each employee will ask for the price of a certain repair. The prices will be accumulated and based on what other stores are charging for repairs, the prices for the shop will be set.
One store was charging a certain price for a particular clasp that they liked to put on their chains. When someone finally sat down and looked, the price they were charging, was less than the cost to buy the clasp. They were buying the clasp, installing it, and were loosing money on every clasp they sold. They charged that price because that is what they had always charged. The price of the clasp had gone up and no adjustment had ever been made.
In setting your prices, there are three methods to determine your prices. They are:
- Cost based method
- Market based method
- Labor Rate based method.
In a Cost based system you would start with the cost of each item including materials and labor. To this, you would add appropriate mark-ups to arrive at a final retail price.
In a Market based system you would set your prices based on what the market will bear for a particular item. You would charge for a service or product based on a retail market price, rather than build the price up from the cost.