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.

Platinum Prices Tied to the Big 3 Automakers?

Platinum fell below $800 an ounce on Thursday–a welcome sight for most in the fine jewelry industry, who consequently are able to lower platinum jewelry prices in hopes of motivating consumers to purchase such items as platinum wedding bands.

Platinum has exhibited nothing short of a bona fide crash in 2008, with platinum precious metal prices down 65% since its monumental peak of approx. $2,300 in March 2008. Platinum, today, hovers near $795 per ounce.

As a second generation jeweler and CEO of Apples of Gold Jewelry, I have been trying to fathom the mechanics of platinum’s elephantine decline. To the evident chagrin of precious metals investors, I have been outwardly gleeful to be able for the first time in six months to actually lower prices on jewelry, rather than raise them. Our goal, after all, at Apples of Gold, is to adhere to our value-based pricing philosophy which has helped boost jewelry sales in past years.

One recent timely factor of platinum’s fall from primordial heights: worries that trouble for American automakers will cut demand for platinum which is used in catalytic converters (motor vehicle pollution control devices). The economy, as we know, is intricately weaved in all of its multi-chromatic facets. Platinum prices fell, however, much earlier than the CEOs of the “Big 3″ flew their G4 private jets to Washington in the most surreal moment of 2008.

The biggest factor: Crude oil prices, a commodity that is economically and intricately tied to precious metals. Oil prices have declined 70% for the year since oil’s otherworldly 52 week high of $145 per barrel.  Oil hit a 5 year low today, closing at $43.67 per barrel, a low not seen since 2003. It’s noteworthy that gas prices have not yet fallen 70% since–but they have made large strides in the right direction.

A marginally rising U.S. dollar and falling oil prices are major contributors to falling precious metals, including gold, platinum, and palladium. The U.S. dollar is up approx. 18% vs. the Euro this year–all of which is contributing to precious metals’ decline (historically precious metals are inversely tied to the U.S. dollar as a hedge against inflation and instability in world markets).

Another major factor for platinum’s fall-out and perhaps the one that makes the most sense? Q1-Q2 platinum prices were simply too inflated at $2,300 per ounce and could not sustain long term jewelry demand. Platinum was far too expensive and out of the reach of most consumers. Although still a “metal for the masses”, platinum has become more attainable.

Personally, I feel much more comfortable with platinum prices in the $700 range. The lower the cost of raw materials, the lower jewelers are able to market their finished, designer jewelry pieces. With the economy in an untenable ball of fear, lower prices are a refreshing and welcome sight in the jewelry industry.

Apples of Gold has recently lowered prices on all of its platinum jewelry. And we hope this trend will continue.

Gold Prices Going Up!

For the first time in some weeks, the prices of gold have started to rise.  It happened on Friday, after a week of miserable financial news and word that deflation was on the way as fuel prices fall, food and retail prices fall, and inflation backs off.  But gold comes to the rescue of investors, edging forward slightly as the dollar weakens.

This is interesting news after months of dismal prospects for miners and mining companies.

I spoke with a foreman who works for a mining company while I was at a family event this weekend.  He gave me the “sad news that 1000 people were laid off by our company on Friday.  We’re just not doing the work because we don’t have the customers right now.”  His company mines everything from sand to salt with minerals and precious metals in between.  So this latest news is good for those companies; their workers and those workers’ families.

Shares of the world’s largest gold mining companies jumped on higher gold prices Friday as investors shifted into precious metals and demand for the product continued to build.

Barrick Gold Corporation, the world’s largest gold producer, along with Newmont Mining Corp., the second largest, and other mining firms posted double-digit gains by late afternoon. The price of gold for future delivery jumped above $800 an ounce – up $52.90 to $801.60 by Friday afternoon on the New York Mercantile Exchange.

The renewed interest comes as investors seek safer investments amid volatility on Wall Street. “There’s been a tremendous amount of pressure on gold in recent weeks because as there’s been a lot of liquidity selling,” Barnard Jacobs Mellet analyst Patrick Chidley said in a telephone interview.

“It’s this battle between sellers trying to find liquidity and raise cash and the long-term fundamentals which are for higher gold prices as a result of a weaker dollar,” he said.

Now here’s the key part for us here at ApplesofGold.com: although we hope for a reasonably lengthy delay in rising jewelry prices, the lower gold prices have boosted demand among jewelry manufacturers and investors, according to Chidley.  This means that prices, which have been sitting idly while the economy appeared to weaken, may be going up.

Holiday prices are expected to remain low, and some say “big sales” and “huge markdown” will be the bywords this holiday season.  But after that, with gold prices going up, expect jewelry prices may start to launch upwards, too. So let the buyer beware: now is the time to shop.