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Cost Calculations of Body Jewelry
Terminology for Costing Body Jewelry
- Selling Price: The selling price refers to the price at which a company sells a particular product or service. However, there are different types of selling prices, so to avoid confusion when discussing product selling prices, it's best to use the more specific terms below.
- Standard Selling Price: This term is used for the base price of a product without any discounts or additional charges. This is often called the default price when selling products online through an e-commerce platform.
- Discounted Selling Price: This term refers to a temporarily reduced product price. If you use platforms like Shopify or Wix, it might be called the sales price. Discounted selling prices are typically used to stimulate product sales while still generating a profit above the cost price.
- Average Selling Price: This term can be used to describe the average price at which a product is sold, including any discounts. To calculate this, divide the total revenue of the product by the total quantity sold.
- Cost Price: To avoid ambiguity, it's best to use the specific terms below instead of "cost price" since it can refer to various types of cost prices.
- Raw Product Cost: This refers to the cost at which your supplier sells a specific product without any additional charges.
- Packing Cost: Some sellers may opt to have their suppliers package the items in a certain way, incurring a packing fee.
- Cost Price Ex Factory: This is the price of the product once it leaves the factory, including the raw product cost and any packing or order processing fees.
- Cost Price Including Shipping & Taxes: This refers to the product's price once it arrives at your shop. Since it would be very time-consuming to calculate it for every product on an individual basis, most companies apply a fixed charge according to the product's weight. For example, you can add 0.05 USD per gram of merchandise weight to the cost price ex-factory to calculate the cost price, including shipping and brokerage fees.
- Final Cost Price: This is the final cost price used for calculating selling prices and includes shipping, taxes, and any other additional fees like your own quality control costs.
- Product Introduction Cost: Introducing new products to our piercing jewelry range incurs costs beyond the product purchase cost itself. This includes expenses such as sample costs, taking initial product pictures, and the administrative labor involved in adding the new product to our website or printed catalog. It's a good practice to periodically calculate these costs for a few randomly selected items to understand the expenses associated with adding new pieces of body jewelry to our collection.
- Markup: Calculating the markup is simply dividing the selling price by the product cost. However, since we have different costs and selling prices, we also have different markups. Especially when you regularly add new items to your body jewelry range, it's essential to understand the difference between them and use them appropriately. The correct markup percentage to use, however, greatly depends on your own business, so the purpose of the following markup types is to compare different items within your company:
- Raw Markup: This refers to the markup calculated by dividing the selling price by your raw cost price. This is what you should use when looking to buy new items from your supplier. Before adding a new item to your shopping cart or order list, ensure the raw markup falls within an acceptable range for your company.
- Final Markup: This markup is calculated by dividing the standard selling price by the final cost price. It's the most accurate markup for pricing, but you can only determine it once you have received the products and know all the related costs. Use this markup when your supplier increases their price to decide whether you should adjust your standard selling price or keep your current selling price.
- Average Markup: This is the average selling price of our product divided by its final cost price. You should regularly review all your products using this markup to see if, for any reason, you are accidentally applying too many discounts to some items to the point where they are no longer profitable for you.
- Lowest Selling Markup: This markup results from the lowest selling price a customer can get if they combine all possible discounts, divided by the final cost price. While not something to worry about as long as you still make some profit and the number of sales at this lowest price is very low, it's essential to keep an eye on this to avoid accidentally selling too cheaply and not making any profit from your product.
- Stock Turnaround/Turnover: This refers to how much of your stock you sell within a specific time period. If you are a body jewelry wholesaler, a typical ratio would be once per year. For example, this would be the case if you start the year with $500 worth of stock valued at the final cost price, purchase $500 worth of merchandise during the year, and end with a stock value of $500 in the following year's January 1st.
- Closeout Price: This is the selling price of a discounted product. The primary goal here is not to maximize profit but to convert inventory invested in the product into cash, which can then be invested in new products.
- Product Life Cycle: The cost and pricing of any product depend on the stage of the product life cycle in which the specific item is currently. Below are the basic definitions for each stage. Note that the length of a complete product's life cycle can vary significantly depending on each product. Some products can be single-season hits, while others can last over ten years.
- New Product: This is when the product is first launched and is unknown to most customers. At that moment, the product can only be bought from a limited number of body jewelry suppliers. Prices are typically high, but sellers are more than willing to offer free samples to potential customers. Many successful products in other countries may not catch on in your country or region, so small shops tend not to purchase new products in the very early stages of market introduction.
- Growing Product: This stage occurs when all retailers have seen that their customers accept the product and are actively trying to source this item from body-piercing wholesalers to serve their customers. It is characterized by high prices and constant product shortages in the wholesale market. On the other hand, online retailers will invest significant amounts of money in certain products and use hot trendy products to promote their brands.
- Mature Product: At this moment, all wholesale body jewelry suppliers carry this product in stock in large quantities, and they compete by lowering their prices. Online retailers will start to offer crazy deals, especially in the early mature phase. This product is being adopted by all shops selling body jewelry during this time. During the late stage of a mature product, some early adopters will stop using it since it has become a mainstream product and doesn't allow themselves to set themselves apart as a trendsetter.
- Declining/Dying Product: Once the trendsetters such as YouTubers and bloggers abandon the product and move on to the next thing, the slow decline of a product will start. This decline will be initiated by wholesale body jewelry suppliers lowering their prices even further because they want to reduce their large stock to free up capital to invest in other new products. The next step will be the online retailers, which will clear the inventory of this product and then no longer sell them. Traditionally the last companies to sell old trends are small piercing studios and body jewelry retail shops. Since, for them, there are no significant costs associated with having a few pieces of jewelry from an old trend in their showroom.
- New Product: This is when the product is first launched and is unknown to most customers. At that moment, the product can only be bought from a limited number of body jewelry suppliers. Prices are typically high, but sellers are more than willing to offer free samples to potential customers. Many successful products in other countries may not catch on in your country or region, so small shops tend not to purchase new products in the very early stages of market introduction.
1st Example Body Jewelry Costing for a Piercing Studio
- Supplier A is based on the east coast of the US. Their price is $0.24. Shipping is free for orders above $200, and since we make regular purchases from them for many items, we always receive free shipping plus a 10% discount.
- Supplier B is in Thailand and sells this item for $0.19. We need to pay a shipping fee of $ 20$ for 1.5 kg and a 20$ brokerage fee to DHL.
- Supplier C is Piercing China, and we sell this item at $0.11. Our shipping cost is $25, and there's also a DHL brokerage cost of $20.
- Supplier D is a Chinese Factory. Their price is $0.10, and they charge us a $30 shipping cost for 1 kg. Additionally, since we import from China, there is a 10% import duty plus a $20 brokerage fee.
- * The weight of each item is 2 grams
2nd Example Body Jewelry Costing for 925 Silver Nose Jewelry
Sterling silver nose ring in a custom package, shipped as a complete item from Thailand.
Sterling silver nose ring bought in bulk from Thailand and packed by our own employees.
3rd Example Costing for Body Jewelry sold online on Amazon or Ebay
