It is a general belief that jewelers make huge amount of money through diamonds. Actually, this is not true. Due to high competition, they would not be able to sell enough items and would go out of business quickly. This is especially applicable to internet vendors who are on very tight margins on the diamonds.
Also, many people have perception that jewelers make huge profit through bigger-sized diamonds (read How Carat weight affects value of diamond). However, the fact is jewelers make less money on larger diamonds than they do on smaller or mid-sized diamonds.
This is because larger diamonds are more expensive for jewelers to begin with, so the potential profits are very small for them in the end. Adding to that, the market for large diamonds is very small, which means these stones can’t be over-priced. It would be more appropriate for jewelers to make minimal profits on larger stones.
So, it can be said that contrary to the popular belief, jewelers don’t make huge profits on diamonds. But, if they don’t earn big from diamond then questions arises that what are the modes through which jewelers maintain their profit margin. Well, you will get the answer to this in the below section.
Modes of Earning in Jewelry Business
Following are some of the ways a jeweler earns by selling a gold ornament:
Generally, jewelers buy gold and ready-made ornaments in bulk at the current rate. They stock this gold and sell at the current prevailing rates. Since, trend-wise gold price increases with time, they make money selling it to you at a higher current rate than what they purchased it for.
You may or may not know this, but gold ornaments that you buy are NOT made of pure 24 karat gold. Gold used in jewelry is mostly of 20 or lower karat and is mixed with other metals. This is because 24 karat gold is too soft and is NOT self-sufficient to hold itself together for jewelry purpose.
This is the margin, i.e. difference between 24 carat and 20 karat gold rate. To be more specific, you will find jewelers who will give you 20 karat gold at the price of 24 karat gold. This happens due to the fact that many customers don’t confirm purity of gold because of buy-back assurance from the jeweler.
But, this selling technique is not followed by all jewelers. You will find jewelers who will inform customers of the purity of gold being used in jewelry.
Making and Polishing Charges
Making and polishing charges are another source of income for jewelry sellers. They add these charges on top of the gold charges of the ornament. These charges vary depending upon the design of jewelry.
Re-purchasing at Lower Price
Thinking of selling your old gold jewelry? If yes, you would most certainly go back to the same jeweler you purchased it from. He will calculate the buy-back price as:
Buy-back Price = (Current market price * gold weight) - 10% of total value
The percentage of deduction varies from jeweler to jeweler, but normal trend is 10% deduction. However, if you try to sell it to some other jeweler, it is possible that he may deduct 20% from the total value. Now, this percentage is again their income as the jeweler will resell the same ornament after polishing at the current market rate.