Jewellers Are Rich, Here Is How They Earn

By Anil Gupta, 10  Finance

Jewelers in India make money by pricing at 24 carat and selling you 18 carat gold. Buy BIS mark gold for safe deal.


How Jewelers Earn Money

How Jewelers Earn Money in India

I have grown up seeing jewelry shops with the owners sitting in air conditioned shops, wearing extra-ordinary heavy accessories and driving expensive cars.

I always scratched my head questioning their business model simply because my mom told me that they sell gold ornaments based on the current market rate. The question that bugged me always was how can they money by selling something at market rate if they are also supposed to but it at market rate themselves?

This is what I have learned after speaking to a Jeweler himself spilling some of the beans of the trade.

Business model of a Jeweler trade

There are various ways a jeweler earns by selling a gold ornament and we will talk about them here.

  1. Cost Hedge:
    Generally, jewelers buy gold/ready-made ornaments in bulk and at the current market rate in the form of gold-bars.

    They stock this gold and sell at a time when the prices have increased.

    Normally, gold’s rate increase and they make money selling it to you at a higher current gold rate than what they purchased it on.

    This source of margin is not a big one unless there is huge increase in gold prices over the period of buy and sell.

  2. Gold Purity:
    You may or may not know this but all gold ornaments that you buy are NOT made of pure 24 carat gold.

    Jewelry is mostly made with 20 or lower carat gold and mixing other metals. 24 carat gold is also NOT self sufficient to hold itself together for ornaments/accessories purpose.

    The difference between 24 carat and the one sold to you is the trade margin i.e. difference between 24 carat and 20 carat gold rate.

    To be more specific, jewelers sell you 20 carat gold with the price of 24 carat gold.

    Sounds rubbish but have you ever checked the purity of your gold jewelry while buying? Most of us don’t do it because we always get the buy back assurance from the jeweler.
    This gives us a sense of satisfaction that the gold should be good as the jeweler is ready to buy it himself.

    This is the biggest catch in this business. As the Jeweler who sold the gold knows its purity, he would be able to buy it back with little doubt.

    The normal trend here is that jeweler would buy back their own gold at 10% less than the prevalent market rate of gold at the time of buying back.

    Example

    Current Gold rate: INR 20,000 per 10 gms (1 tola) of 24 carat gold
    Polishing and making charges: INR 200 per gm of Gold

    If you are buying 10 gms of gold jewelry, the jeweler will calculate the cost as follows:

    CalculationAmount
    Cost of Gold1*20,00020,000
    Polishing & making charges10*2002,000
    Total22,000

    We assume that the actual gold purity in the jewelry is 20 carat. Hence the actual cost of gold should be
    INR 16,666 for 20 carat of gold .
    Hence, the actual calculation as per ACTUAL gold content in the ornament should be:

    CalculationAmount
    Cost of Gold1 * 16,66616,666
    Polishing & making charges10*2002,000
    Total18,666

    So, the difference between the actual calculation i.e 3,334 (22,000 – 18,666) is the profit margin of a jeweler.

    Ideally, this is NOT a good business practice and is NOT followed by big jewelry brands.

    One should clearly mark the gold purity and charge the buyer with correct price. Unfortunately, this is not the way jewelry industry works in our country and is one of the main reason we recommend buying a BIS marked jewelry.

  3. Making and Polishing Charges:
    Jewelers add these charges on top of the gold rate of the ornament. These vary from INR 50 to 500 per gram of Gold depending upon the quality of gold designer.

    The jeweler would save money on ornament production as they produce in bulk but charge you the amount per gram. There are rare instances when you would order a particular design/piece with your specific choice. In these rare instances, the ‘making charges’ would almost double up.

    If you don’t believe my words, try and get a customized gold ornament from your favorite Jeweler and you would be able to testify my words.

  4. Used Gold purchase or buy-back at a lower rate:

    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

    (Current market price * gold weight) – 10% of total value

    The percentage here varies from jeweler to jeweler but normal trend is 10% deduction. Also, if you try to sell it to some other jeweler, they will deduct 20%.

    Now, this percentage is again their income as the jeweler will resell the same ornament after polishing at the current market rate.

  5. Weight of extras counted in gold weight:
    Have you ever noticed that extra accessories like the small round balls or the blue/green paint etc. are also weighed and counted while gold is sold to you?

    And what happens to the weight of these extra while selling it back? They are simply kept out and only gold weight is counted.

    This is another area of margin for the Jeweler.

What if we buy BIS hallmark jewelry?

Yes, BIS hallmark is a good tool to know the purity of gold while buying. But have you ever bought BIS hallmark jewelry with the same pricing as the NON-BIS marked jewelry?

I bet you would have not. This is because, here a jeweler cannot cheat you with the carat count but still need to make profit. Hence, they will charge higher on polishing, designing and making charges of the jewelry.

Please note that BIS mark does not mean that the gold is 24 carat pure. There are different marks for different levels of purity as:

MARKGold Purity (Carat) level
95823 Carat
91622 Carat
87521 Carat
75018 Carat
58514 Carat
3759 Carat

It is always better to buy a BIS hallmark jewelry to be sure of the purity of gold and it.

It can then be sold to any jeweler without worrying about the buy back deductions for obvious reasons.

The jeweler who is buying your old gold will be comfortable in buying the BIS marked gold instead of NON BIS marked one too.

  • Benny

    Really helpful article, thank you Anil

  • You are welcome Benny.

  • Anonymous

    you actually showed the margin less
    For example if one tolla is 20000
    Then one masha will be 1666
    If u buy one tola
    The ploish they will add is 2 masha
    That will be 3333
    So hw the price per tola increases the margin does aswell
    And if you are to sell it
    Sell it to the jeweller you buy it from
    Coz then he is bounded to
    To deduct less
    then the new jeweller u going to sell

    And instead of buy some thing with beeds and moti
    Buy jewellery with maximum solid possible
    That way when u go sell it
    You get maximum gold from it

  • Anonymous

    And if you dont get good margin
    Its never a good business
    And this business is all about trust
    Instead of having a big fancy shop

  • Good example.

  • True.

  • max

    Dear Rohit – thanks for trying to clarify – let’s see if you can now answer below in the same order as you have clarified.

    # weighing gold. It is a common practice for jewellers to weigh gold with the stones embedded. Lots of faulty weighing machines are found – even at popular places like Kalyan Jewellers.

    # Rates are for 24k gold. How many times do you publish rates for 22 k or 18k gold that you actually use? These rates are only verbally told to the customer.
    # If it’s so good – why do jewellers tell you that when you return the jewellery or exchange it – you might lose out on the diamond price.
    # So basically when you buy back – you have charged making charge twice and got all your gold back.
    # few %? What if your petrol pump guy told you – Sir, today I decided to sell you petrol at 10% extra. I hope you don’t mind – you are almost out of fuel and I am helping you in your crisis.
    # Car & TV are not investment assets. No one thinks that they will buy a car for 5 lakh and sell it for 6 or 7. But you jewellers promise that at every step. That’s why we need the break up.

    # I hope you read the news – because there are cheating cases against joyalukkas, kalyan jewellers, josalukkas and bhima. google it if you like.
    # If all businesses started charging customers arbitrarily to cover their capital costs – it would be a mad mad world. Government had to start BIS because all jewellers are frauds. Consumers were being cheated at each step. And you have the gall to come and justify! Ha!

  • akhilesh

    Adding to all ur points why jwellers can not clarify how much wastage on different jewellery. Why a necklace had 30% wastage and an earring has 15%?

  • Anonymous

    Not a single jeweler is practicing the following:

    As per government rules, for studded jewelry (both gold and platinum) the wastage claimed by jeweler cannot exceed 9 % of the net weight of the metal and for non-studded designer jewelry, it cannot exceed 3.5%. For coins, biscuits and medallions, the wastage cannot be claimed beyond 1.25% .
    Source:
    1) http://timesofindia.indiatimes.com/city/hyderabad/Gold-buyers-getting-royally-fleeced-by-jewellers/articleshow/20936218.cms
    2) http://www.lawyersclubindia.com/experts/Wastage-charged-in-gold-jewellery-shops-455476.asp#.Vwy8N_l96M8

    No wonder they are rich. But I do wonder how they sell the jewels with wastage charge as high as 30% openly and manage to get away with it.

  • s

    No, above mentioned process is not wholely correct…The profit margin is not so less….its far more than mentioned above…..
    If anyone of you is a businessman, please tell me the minimum profit margin when you sell a pack of general item like a soap or detergent or anything of that sort….its at least 15% from the cost price…..
    Do u know what’s the profit percentage of a person dealing with cloths….it’s more than 25% minimum….and in non branded cloths it may vary from 100 percent to 400 percent…
    And you can’t get even 20 rupee back if you want to sell it back to the dealer….
    Now what you have to say dude…