Costing and pricing for jewellery
In many cases, you will not be able to dictate your own prices. Your market research should give you insight into the prevailing retail and wholesale prices, appropriate margins and competitor prices. Here are some considerations to make in determining a pricing strategy.
Pricing is a mix of knowing your domestic costs and calculating costs you will incur in delivering and supporting your activities in the market. However, there are various strategies you can adopt in setting your prices, depending on your market position, the uniqueness of your jewellery and the number of similar jewellery pieces available from competitors. For more information on different pricing strategies, see the CBI publication Export Marketing Planner and Your guide to market research - Your Research Practice (Part 2) – http://www.cbi.eu/marketinfo ‘search CBI publications’ export manuals. If you are new to exporting, or if you are exporting a new collection, the most common form of price setting is to benchmark your price against established prices in the jewellery sector that your competitors charge, or, against the closest retail equivalent. Therefore, try to find out the approximate price of jewellery pieces similar to your own, then work back through the distribution chain to calculate the price you need to be charging to cover your own costs. Also, consider a small margin for unsold jewellery pieces. Key considerations include: • Which currency? Most exporters quote in Euros (€) to European clients, although the $US is still sometimes used. • Position in distribution chain? Prices and margins are influenced by a number of factors, depending on where you are selling in the distribution chain. Wholesalers and other importers base their costing on a CIF (Cost Insurance Freight) basis and apply their margins. The landed cost for the importer is the FOB (free on board) cost plus the cost of delivery, insurance and duty, if applicable. • Affordability. If you find your profit margins are too low, try to reduce costs or adjust margins. If this is not possible, you may consider to cancel exporting the jewellery piece or to focus on other markets. Margins vary greatly, depending on the type of jewellery and retail channel. You might be shocked by the level of mark ups charged by some retailers in EU countries. Although production costs have come down, other costs (sample shipments, packaging etc.) in the chain have gone up. These costs might account for a larger part of the selling price than the bought-in production cost. • • Charge the price the market will bear. Do not go above ‘price points’, the price set by the market for similar products. It should be in line with competitor prices. The price should reflect the company’s quality levels, delivery and promotion; Keep in mind that it is not easy to increase prices once you have agreed to deliver at a certain price.
Source: CBI Market Information Database – www.cbi.eu • Contact firstname.lastname@example.org • Publication date 30.11.2011
you deduct the retail margin of say 90% of € 33. as well as a profit margin. You could offer quantity discounts as larger volumes reduce the cost price. 5% on € 5.2. most buyers will try to bargain. transportation of goods to the port. the likely volumes and order sizes. particularly as you are currently an untested new supplier. • Next. You have also recognised that to charge above this price would probably be unacceptable to both customers and retailers. which is the ex-works price. These include the degree of risk (is it a new product.5% that is levied on silver neck chains with stones entering the European Union.33. the level of marketing and other support that may also be required in the EU country. Note here that you have to calculate back – see also the example given at the end of the modules ‘Trade structure and channels’ under ‘Price structure’ for Silver jewellery. you will have to calculate back from the retail selling prices and apply profit margins of the different intermediaries: • To start with. try to do negotiate a price for a fixed period. embroideries. prints etc. by dividing € 40 by 1. Your research may tell you that the average retail selling price of similar products is approximately € 40.eu • Contact marketinfo@cbi. VALIDATE profit margins being used by wholesalers in different countries.
Source: CBI Market Information Database – www. for example one year. • Then.000 or 10% on € 10. on websites). The profit figure will be small. • You will most likely arrive at a figure of around € 7. you will also have to subtract overhead costs. labour and other overheads. remove VAT from the price (approximately 20%.09 • Do not forget the import duty of 2. When negotiating you could consider a discount on the value of the order e.33. as well as shipping costs from your homeport.cbi. depending on country).2011
. take the wholesalers’ margin into consideration of say 30%. and ultimately your price calculation.000.. This depends on the conditions you have made with your buyer. You decide to target online jewellery specialists as a channel for your jewellery collection. This will bring you to a figure of € 17. You do this by dividing € 33. machinery.50. is the product type unproven). from which you will have to find the cost of the material.Costing and pricing for jewellery
Try to work always with a fixed price list. the general economic climate.37 which gives you € 13. which is the retailer’s bought-in price. divide € 17. You have chosen to target the middle end of the market as you consider this product can be positioned as a value-for-money product. RESPECT the price points of different jewellery pieces within your collection. unless you make a limited range of high value silver jewellery pieces. In order to find out your own price. You have a new range that you think will compete in the 'pop-art’ category of mid-market retailers. BALANCE the ratio between retail selling price and quality desired by the target group. In addition. This is a theoretical calculation. including extent of competition and spending power of consumers.9. Also. Be sure here to add this amount first to your prices!
You are a manufacturer of sterling silver rings with colourful semi-precious stones from Colombia.g.33 by 1.g.eu • Publication date 30.11.54 by 1. Some tips in order to maximize your own profit margin: NEGOTIATE prices for raw materials. as well as other handling costs and insurance charges of say 7%. but at least try to leave some room for risk or unforeseen changes or currency fluctuations. VERIFY the coherence of wholesalers and retailers price in relation to the prices from your research (e. This gives you € 33. • From this.54. There are many factors that will influence these margins. So. as well as the rate of sales throughput.
iccwbo. Letters of credit are usually used when the buyer and seller are not familiar with each other. plus loading costs. Many retailers insist on only paying after delivery has been made (usually 30 days). Note that a new set of Incoterms rules have come into effect in January 2011 and the number of rules has now been reduced from 13 to 11. while buyers prefer to pay as late as possible. bank transfer after receipt of the invoice.eu • Contact marketinfo@cbi. quantities and the means of transport. The other option is Cost Insurance Freight.
Methods of payment
In the jewellery trade. insurance. inspection or even sale of the items. before entering into a contract. It provides a guarantee that the payment has been made.cbi. the payment method chosen will depend on negotiations between buyer and seller in which both will try to achieve the best conditions for themselves. A general offer consists of sending a short profile of your own company and an overview of your product range with a price indication. Most buyers cover themselves in advance.2011
. where they can return unsold stock. This means that you will be responsible for paying for transportation of goods to the port of shipment. Insurance. Exchange rates fluctuate. but terms can be negotiated in relation to the extent of up-front costs you may be involved with.Costing and pricing for jewellery
• The most common delivery terms for jewellery are Free on Board (FOB) or Cost. Sometimes retailers try to negotiate a sale or return. after arrival. This method requires no documents.sitpro. credit terms and currency risk. but additional costs are involved.org. A failure in delivery can result in cancellation of the order.eu • Publication date 30.html?id=42201 Failure to deliver on time is likely to be subject to penalties. More information can be found at: http://www.html for detailed information on the various methods of payment available for exporters and importers in international trade.e. where you are responsible for payment up to the importer’s port (a variation on this is Cost Freight where you are also responsible for landing charges). FOB or CIF). Trading relations between exporter and importer are based on trust. For first time shipments a letter of credit (L/C) could be negotiated. Freight (CIF). However. you should be absolutely sure you can meet delivery dates without delays. unloading and transportation to the final destination. See www.
Drawing up an offer
There are two different kinds of offers.uk/trade/paymentmethods.
Source: CBI Market Information Database – www.org/policy/law/index. Make sure you do not confuse the distinction between a general quotation and a legally binding offer: • General offer – or company introduction The purpose of a general offer is to attract the interest of prospective buyers or trade partners who you do not know well. So. Free on Board is always used in conjunction with a port of loading. has low cost and can be done quickly. whereas trade partners in the EU usually pay on ‘open account’. and they can only be built up by meeting the high expectations of the importer. This implies that exporters prefer to be paid before shipping the items. in general: • • The negotiated price depends on the Incoterm (e. the terms of payment. In international trade. but in many cases standard industry procedure will determine the payment terms.11. The buyer pays the shipping cost. You should negotiate to your best advantage. Inform your customer immediately if a problem with delivery arises.g. i. Incoterms (developed and maintained by the International Chamber of Commerce) are universally accepted rules that define the responsibilities of buyers and sellers for the delivery of goods and determine how costs and risks will be allocated.
This survey was compiled by Searce in cooperation with Mart Krijger Disclaimer CBI market information tool: http://www. It is advisable to fully spell out the detailed product specifications and other terms of engagement. It is always worth requesting confirmation of this from your client to avoid any possible misunderstandings. you make a specific offer.2011
. including delivery and payment terms. • Specific offer Once you know the business partner personally or after you have made the initial contact.11. See also the related module on ‘Developing a promotion strategy for jewellery’. This is legally binding for a certain period and is often based on a specific request from the business partner.cbi.eu • Publication date 30. briefly introduce your company and inform the buyer of the advantages of starting up a business relationship with your company. You must therefore be able to fulfil its terms of contract. what are your Unique Selling Proposition (USPs) etc.eu • Contact marketinfo@cbi.Costing and pricing for jewellery
In a personal letter.eu/disclaimer
Source: CBI Market Information Database – www.cbi.