Stefan Austermühle, General Manager of Gemrock Peru June 2021
Gemstone producers, wholesalers and retailers are used to buy and sell in kilograms of products. Gemrock Peru is breaking with the accustomed way by charging our clients by the unit. Some feel that makes life more difficult and we agree that every change is requiring some energy to adapt. However, there are a number of reasons why pricing by unit is better for everyone:
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1.) It provides a fair price for the producer
Pricing by the unit takes into account the required raw material and labor cost in a much better way.
From years of experience as a producer we can affirm that contrary to common belief smaller products do not require less raw material and less labor effort, but actually more. Smaller products produce probably the same amount of cut-offs in total weight, but the cut off pieces are smaller and can’t be used for anything else anymore – so actually the total amount of raw material used is higher.
Labor cost for many products (like hearts and eggs for example) do reduce because making a smaller piece is faster than a bigger one. However making a 3 cm heart does not require 50% of working time in comparison to a 6 cm heart, but actually approximately 75% of the time. So making two 3 cm hearts is 1.5 times the labor cost of a 6 cm heart.
For other products (for example spheres) there is no difference in labor time at all between sizes. Making a 40 mm sphere is exactly the same time than a 50 mm sphere and so on.
Worse even in cabochons: Making smaller ones takes much more time than bigger ones because the cutter needs to be very careful and work slow in order to cut a smaller cab. Sometimes cabs are so small that they have to be mounted on dop-sticks which further increases working time. The reduced amount of material for a small cab does not compensate fully for the increased labor time. So smaller cabs actually should be more expensive than bigger cabs.
Pricing by unit takes into account both, real material costs and real labor effort. This way charging by the unit breaks with an existing abusive pricing system where wholesale clients ask producers to make ever more smaller product for the same kilo price this way having to work more and more for less and less money. The only way to do this is to produce less quality and save time in shaping and polishing. Selling and buying in kilos has established a system that is unjust and abusive with producers and makes the market trend to products with an ever worse quality. The way to break this trend is charging a fair price calculated by the unit.
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2.) It avoids disagreements
Given the facts mentioned previously it is clear that when charging in kilos, the way will lead to disagreements. From a producers point of view it is better to provide you with a few big and chunky products (that weight a kilo) then producing a lot of smaller units to make a kilo. While wholesalers see it the other way round. They want producers to make lots of small units to earn more money by marking up on each unit. The same game plays out between wholesaler and retailer. It is obvious by now that this can lead to arguments. Just imagine you order a kilo of hearts thinking you will get a few, and your producer or
wholesaler sends you a single stone heart weighting a kilo. Even if this is an extreme example it makes clear where the problem lies.
By charging by the unit there is no room for misunderstanding because if you pay for ten units you will get ten units. For this system to work without problems there is one more thing needed, however: that is standardizes sizes. This is how Gemrock Peru works. We offer our clients standardized sizes for all our products. For example a 60 mm heart has a predefined size with always the same length, height and thickness and therefore more or less the same weight. Therefore no misunderstanding is possible. We know what to produce and you know exactly what you will get.
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3.) It makes retail pricing much easier
If you are a retailer, your interest is to be able to foresee what you will get (how many products) for how much money (cost). And you will want to know how much shipping and importation taxes you have to add to each piece being sold (and shipping costs are calculated by weight). So it is in your interest to know exactly how many products of which size and weight you will get for your money. Charging by kilo will not give you this clear picture but making each ordered package become an opportunity for good and bad surprises. Charging by the unit however makes it possible for you to exactly calculate the cost for each piece and make your final pricing accordingly.
In summary: Charging by the unit produces fair trade, avoids problems between the parties and makes it possible for retailers to get exactly what they paid for.
We belief that is worth a little effort to change the old ways and the positive reactions of most of our clients strengthen our belief.