A Labor Rate based system is a combination of the two. You would set your labor price based on the market rate for labor. Then figure the parts and material on a cost basis, with appropriate mark-ups. Then combine these two, to arrive at your retail price.
Cost Based Pricing
In most stores, work coming out of the shop is priced the same as other items in the store. The cost is figured for materials and labor. Then the normal store mark-up, is added to it.
This pricing system is inadequate in two ways. First, most stores have no idea of the true cost of the repair. At best they take the cost of findings and add the labor cost based on what the jeweler is paid per hour. This is inadequate, as it does not include all cost to the store.
Second, a shop mark-up needs to be added. Where a typical store mark-up is 100% (keystone) a typical shop mark-up is 50%. Items leaving the shop should have the shop mark-up added to the cost and then the retail mark-up added to this amount.
For example, an item with a cost of $100 is sold for $200, the store making a gross profit of $100 on that item. An item coming out of the shop with that same $100 cost needs to have a shop mark-up of 50% added to it for a total shop price of $150. To this price the retail mark-up is then added, making the selling price $300, the store making a gross profit of $200.
Many storeowners have a name for this. It is called “Gouging the Customer” or “Ripping the Customer Off.” However let us take a closer look at each item and see. Is the store ripping the customer off by charging this extra mark-up? Or Is the store ripping itself off by not charging it?
Retail Mark-Up
The retail mark-up varies from store to store and ranges from 50% up to 400+%. For our discussion we will use keystone (100%) the percentage does not matter, but is the additional amount ($150 Vs $100 in our example above) justifiable?
This mark-up is added to the cost of items sold to cover expenses (other than inventory) incurred by the store to sell the jewelry and to provide the owner a profit on their investment. Expenses are varied and include; advertising, bookkeeping, sales supplies, insurance, rent, sales staff salaries, commissions and many more too numerous to list. The biggest portion of these expenses is paid in employee benefits, employee taxes, and wages. Because of this, it is extremely important to consider the amount of time spent by the sales staff in making a sale.