You always wonder why the jewellery piece you have bought from the store is costing more than the price of gold. You are at a quandary to figure out why such a vast difference pervades between these two prices. Take heart; lot of things go into making the jewellery piece you are holding other than basic gold metal.
Price of gold jewellery is worked out after adding the cost of fabrication, outlay for aesthetics, marketing expenses and a margin for the manufacturer. The resultant sum is known as “Trade Price” on which the manufacturer would pass it over to a wholesaler. When you buy gold jewellery from the manufacturer direct, you pay above the trade price; the difference is construed to be the wholesaler’s margin. If you buy from a third party retailer the price includes both wholesaler’s margin and the retailer’s profit.
Let me give you a broad brush stroke of how trade price is arrived at and what is the cost or value imputed. First, let us look at the fabrication cost taking place in the first circuit. It consists of five layers:
1. Basic metal price is the primary item that relates to the gold price prevailing at the time of sale. To this jewellers add the cost of alloy metals. These include, but not limited to, copper and silver. Composite alloys are also used, imported from countries like Italy and Turkey
2. Materials and consumables is the next one; cost of beads, beading wire, soldering and consumables among other things are valued and brought into the cost
3. Cost of labour is the third layer; wages of skilled craftsmen and others involved in the manufacturing process directly need be ascertained. It is done on piece basis or hourly basis
4. Absorption of overheads is charged thereafter. Overheads including power & electricity, cost of premises, insurance & up-keeping, wear & tear and tools & equipment are totalled and a rate of absorption is arrived at to be imputed into the fabrication cost
5. Fifth and final layer on fabrication cost is the estimated gold loss that is incurred in manufacturing jewellery articles. There is an element of waste, whether jewellery is machine cast or man-made. May be the wastage in cast jewellery is sliced. Never the less, it is clear gold loss cannot be eliminated totally in whatever the production process adopted.
Aesthetics value is in the second circuit that must be taken care of. We are concerned, chiefly with two items in aesthetics: Design and brand. Cost of design is not an overhead but a sunk cost. Since most designs are patented nowadays, each time a designer wear comes out it is loaded with the portion of the design cost, to amortize the amount spent on developing such design. In some cases, fees paid to consulting designer are proportioned instead of total design cost. When branded jewellery is made out, then additional premium is added.
Marketing cost lies in the third circuit; a whole lot of expenses covering packaging, display, promotion, distribution and selling creep into the price of jewellery. While all these are expenses incurred or deemed to have occurred, the fourth circuit, that is profit margin is often arbitrary and sounds like making a killing. Profit margin of jewellery products can range from a bearable 15% to a whopping 150% depending on the item being marketed as branded, designer wear, Avant- garde, fad, fashion or simply put craze.
Muthu Ashraff
Business Adviser
Mobile: +94 777 265677
E-mail: cosmicgems@gmail.com
Web: http://www.cosmicgemslanka.com
Blog: http://cosmicgemslanka.com/blog/
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