[Jewelry making - Article 00173] - [Orchid] The cost of holding out

[David S. Geller]

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    I had someone email me about not wanting to deeply discount old
    stuff to get rid of it but rather wait until it sells for a profit.
    They'd sell for a slight discount but not at or near cost. I wanted
    to share the "numbers" of holding out. 

    The names have been changed to protect the innocent :-) 

    By waiting it out to sell to someone at a good profit what you LOSE
    on old inventory is PROFIT OVER THE YEARS IT'S BEEN THERE. 

    Look at this: 

    You buy a ring for $1000 and retail it at $2200 January 2000. It
    sits and sells in December 2000. Your gross profit? $1200.00. 

    What do you do with the $2200 check? Take $1000 of it and buy
    another! That leaves you with $1200 in profit to pay bills. Got it? 

    The first year (2000) YOU bought the $1000 item with YOUR money. In
    year January 2001 you buy the next one with the CUSTOMER'S money!
    Cool. 

    Now it's January 2001, you bought it, tagged it, and wait. 

    It sells in December 2001 (cool-a turn of "1") and makes a gross
    profit of $1200.00. Very cool. 

    How much has your initial investment in January 2000 (a year ago)
    brought to you in total? $2400! Yes two years profit of $1200 each. 

    Do it again in 2003 and make now in 3 years you've made $3600.00 in
    total profits. Not bad for a $1000.00 investment. 

    That's the way it should be. Doesn't always work out perfectly but
    that's your goal. 

    Now let's use the bosses theory: "I ain't selling it unless I make a
    profit!" 

    Well how much profit should a three year old piece of jewelry make?
    Simple, $3600, right? $1200.00 per year over 3 years equals
    $3600.00. 

    So if you wait three years and discount it 20% in year three it will
    sell for $1760.00, gross profit is $760.00. You didn't make $760.00,
    YOU LOST $2840.00! 

    Why? Because it should have made $3600 in gross profit in 3 years
    but only made you $760.00. The difference is $2840.00 in lost
    profits. 

    You need to cut your loses WAY before 3 years. Start getting rid of
    bad stuff at 12 months and be diligent after that. 

    Why? Because if it didn't sell in year one and you sold it even at
    40% off ($1320.00) you'd make $320.00 in gross profit. The $320.00 in
    gross profit goes to pay bills and you take the $1000 and put it
    something that WOULD TURN, in the next two years you COULD possible
    make the $1200 per YEAR gross profit for year 2 and 3. 

    So here's what you could make discounting heavily after 12 months
    and re-investing. 

Profit        Year

$320.00         1
$1200.00        2
$1200.00        3

    Total profit in 3 years by dumping and re-investing $2760.00. 

    If you held OUT for 3 years and sold at full retail of $2200 your
    profit in 3 years would be $1200.00. You're still $1560.00 short in
    total 3 year profits. 

    Waiting for someone to buy it at YOUR price can't compete with
    turning it, dumping old no profit generating items. 

    The way to make holding out over three years compete with my
    suggestion is this: 

    Remember you want $3600 in profits in 3 years? 

    If you hold the $1000 cost ring for three years, you'd have to SELL
    it in year 3 for $4600.00! That would be the 3 years of profits plus
    the cost of goods. It only was tagged at $2200.00 originally. 

    In addition you have the situation that the excess inventory you
    PAID FOR or OWE is not bringing in the profit required each year but
    you have to pay for the product in year one even though it returned
    no money back to you in year one. Therefore you OWE a lot of money,
    either to the bank, credit cards, accounts payables or the owner
    doesn't take out much money. Or all of the above. 

    If you get keystone and run a store that has overhead at 40% there's
    no way you make enough money to PAY for inventory you WILL sell in
    year one and inventory you won't sell in year one. Think of it this
    way. Can you pay during the year the inventory you'll need THIS year?
    Yes. 

    Can you pay THIS year for the inventory you'll need over the next
    THREE years? I doubt it. Besides you might not need that much
    inventory anyway. Selling it off could be sued to pay bills and not
    owe so much. The amount of inventory you should have is NO MORE than
    the amount you wills ell from the case in ONE YEAR. 

    You're married and sleep with your spouse. You're not married to
    your jewelry. It's just a love affair or a lust affair. A money
    lust/love affair. And just like an affair, if you don't PUT OUT then
    GET OUT! 

    Jewelry is not bought to make you a profit. Your BUSINESS makes you
    a profit. Jewelry is just the tool you use to make the profit. 

Sincerely
David Geller



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