Pricing Gold Jewelry, An Insider’s POV

Keystone Pricing

Keystone pricing is taking the wholesale cost of a piece of jewelry and marking it up 100%.

Information site, About.Com, takes this a step further. They advise entrepreneurs:

“A simple formula when pricing for wholesale is to add up your costs (this includes labor, overhead, and supplies) and multiply by 2. For retail, do the same, but multiply by 2.5 to 3.”

In other words, they advise taking not only the cost of the jewelry into account, but also other variable business expenses to determine the net cost of jewelry and then to multiply by 2 to obtain a wholesale cost or 2.5  to 3 times to obtain a retail price.

Keystone refers to doubling the cost of jewelry, whereas triple keystone is tripling the cost of jewelry to determine the retail value (A staggering 300% Mark Up)!

This is not uncommon in the jewelry industry and some jewelers mark up jewelry even higher.

Apples of Gold Pricing Methodology

Where Apples of Gold Jewelry differs significantly from standard jewelry industry pricing is that at best we mark up our jewelry an average of 30% from the cost of the actual merchandise. On select designer pieces, we may mark up select items 40% – 50% (you can call this half-keystone, if you will).

Compare this to 100% to 300% markup of the traditional jeweler, and you will see why customers often call us to ask us how we are able to sell jewelry for so low.

This is where we stand apart from most traditional jewelers and even online jewelers. When comparing Apples of Gold to traditional jewelers we are usually 50% below retail and when comparing to online stores, Apples of Gold Jewelry is an average of 30% lower than most online jewelry competitors.

This leads us to our value-based pricing methodology.

Value Based Pricing

Apples of Gold strives to determine its jewelry prices based on the value that a piece of jewelry creates for our customers. We believe that this is more profitable for us in the long term–as we serve our customers and provide an affordable, quality product.

By selling with greater volume nationally across all U.S. States and internationally across Europe, Asia, Canada, and other parts of the globe, and by limiting overhead, and very significantly not having the huge burden of stocking every jewelry item in-house, we are able to sell at vastly lower prices than most jewelers, while providing a fair valuation of our gold jewelry.

Additionally, we combine our value-based pricing with a “fair pricing” method. “Sometimes it simply doesn’t matter what the value of the product is, even if you don’t have any direct competition. There is simply a limit to what consumers perceive as ‘fair’. If it’s obvious that your product only cost $20 to manufacture, even if it delivered $10,000 in value, you’d have a hard time charging two or three thousand dollars for it — people would just feel like they were being gouged” (entrepreneurs.about.com).

The Bottom Line

Most jewelers have to charge anywhere from 100-300% to maintain a profitable business. With large overhead, shifting gold and metals prices, employee costs, and most costly–expensive inventory–they cannot survive on smaller than keystone margins.

The difference with online jewelers–and especially those who have deep and mutually beneficial relationships with manufacturers and wholesalers, the markup on jewelry will be significantly less, usually not breaching 30%-50%.

At Apples of Gold, we recently were in talks with one of our major suppliers to get lower prices to obtain a 40-50% margin on products that they supply us, and the idea was quickly dismissed–because both we and our suppliers understood that to be competitive in the online environment, such a mark-up is difficult to achieve. We finally settled on a 29.5% margin on items that we purchase from them. So an item that cost us $300, we are selling for about $385.00. A traditional jeweler would normally sell an item obtained at wholesale for $300 for $600 (keystone), or possibly $900 (triple keystone).

That is why Apples of Gold rightly advertises our products are approx. 50% below standard retail (and that is a conservative estimate).

Learn more about Apples of Gold Jewelry and our value-based pricing methodology.

Featured Products in this Post

Men’s 14K Gold Angular Link Bracelet

Sea-Foam Green Amethyst and Diamond Ring

Art Deco 1/4 Carat Diamond Ring

Caedmon Celtic Wedding Band

Featured on ApplesofGold.Com.

Snapshot: Gold Mining in the Philippines

The interesting thing about the internet these days is that we can see the inter-play of gold prices and the international economic climate.  We can read about laid-off retail workers in England, nervous buyers in Israel and the Mideast, and frightened consumers around the United States.

But we can also see a bright spot, like the gold market.  The gold market is steadying fears around the globe as well.  The reason?  Historically, gold has been the benchmark of wealth and luxury across centuries, including in stressful economic times like we’re seeing.  And because of the internet, we can peak into the history and current thinking in far away countries, for instance in the Philippines.

During the Great Depression that hurt the United States from the late 1920s to the early 1940s, a gold boom was underway in the Philippines, where Americans established the country’s first mining enterprises, according to a top Philex Mining Corp. official.

This bit of history has given Filipino miners hope that they can ride out a prolonged recession when it hits its hardest there in 2009.

It is only gold that offers a measure of hope for the industry next year, when the looming recession is expected to take its toll on the economy, said Louie Sarmiento, who is president of the Philippine Mine Safety and Environment Association.

“The gold mining activities will continue on account of the good price of gold, and there are projections they will be maintained, if not [escalate] next year,” he said.

According to the Jose Ernesto Villaluna, President of Philex Mining Corp., the sector takes comfort and refuge in the parallels between 2008 and the gold rush of the 1930s, when the US began experiencing the pangs of the 1929 depression.

“If you look at the Great Depression in the [1930s], the common denominator was gold,” Villaluna said. “[President Franklin Delano] Roosevelt upped the price of gold from $19 to $35 an ounce and that was when all the gold mines boomed.

He was referring to the enactment of a US Gold Standard, which defined the value of the currency of many countries against a specific volume of gold quantities.  That was retracted when the American government introduced a gold reserve law making it illegal for people to own gold.

This law pushed gold prices from $20.67 per ounce to $35 per ounce at the time.  Now it’s over $800 per ounce.

At the same time in world history, the gold industry experienced a boom, even in the Philippines growing from 89 mine claims applied for in 1905, to 544 mine stakes in 1906.

Gold has always been a store of wealth in times of uncertainty.  It will be the stable place to be during whatever lies ahead.  Gold continues to fulfill its role as an asset for uncertain times and demand is strong.  It’s an investment you can be certain of, even as we continue to watch the markets in turmoil.