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I am asked so frequently about the economic aspects of amateur faceting,
that I felt it would be a good idea to write this article. I don't
claim to be an expert on this topic, but I do get to speak to many
experienced faceters, and hopefully I can put together enough of their
ideas, and some of my own, to make this informative. I am sure that not
everything will go uncontested-factors are not noteworthy for being shy
in voicing their opinions, and the only thing I know them to be unanimous
about is their pleasure in faceting.
It is important to emphasize that this article is not about the person
who facets specifically to make money, the professional or the semi-pro.
It's about the amateur-the hobbyist.
In the title, Economics of Amateur Faceting, it is "amateur" that is the
key word. The dictionary give the word's first meaning as "devotee"-someone
who is devoted-and that definition is basic to the logic of the article.
It's fair to assume, by definition, that the "amateur facete" is indeed
devoted-someone for whom the pleasure of faceting comes first, and for
whom economic factors are secondary. But, secondary or not, the product
of the faceting hobby, gemstones, do have a real market value. It makes
sense that any faceter, including the amateur, should consider the economic
aspects of this hobby.
A VERY BASIC FORMULA
In faceting, the economic questions of financial profitability are just
like those of any other activity. There is a basic formula - you add
up the cost of Material (gem rough), Supplies, Equipment, and labour
Time,-and then add a Profit to determine the Value of the finished item.
That's: M+S+E+T+ P=V
Now, you knew that all along (you probably even tried it)-but you still
come back scratching your head -it's not so easy for an amateur to use
that formula- and the biggest confuser is the factor of your time- there's
a mystery-how much is your time "worth"?
WHAT ABOUT THE FACTOR OF TIME?
For good reason, the question of how to value time is the first question
that the amateur asks - it's the most puzzling. Now, brace yourself, the
answer to this question is-the financial value of the amateur's time
is - nothing. Dear faceter, your faceting is done for pleasure. You
would choose to facet even if there were no market for the product. As
an amateur - a devotee - you would not only dismiss any cash value for
your time, but if some bureaucrat set up a licensing requirement for
faceting, you would pay for the privilege.
In any event, the amateur in a search for excellence spends much more
time at completing his stone than a pro ever does. It shows in the quality
of the stones. It is acknowledged that the finest faceting is produced by
amateurs. But still, remember the "nothing" value of the time - you facet
because you love to.
To illustrate this point let me refer to another hobby of mine, raising
tropical fish. If I added up the time spent at this hobby and wanted to
be paid for that time, I would have to charge a small fortune for the
occasional fish sold. But I do not think of time because I'm doing something
I love to do. The fact that the faceter is working with gemstones, which are
symbols of riches, does obscure the question, but the same principle applies
- hobby time is not time to be paid for. So much for the time factor in the
formula.
In a similar manner, supplies and equipment drop out of that formula. Without
beating it to death - let's jump back to the analogy of the tropical fish
hobby - I don't expect to recover the cost of the tank (equipment) or the
fish food (supplies) - that's all part of the activity that I do as an
amateur - out of devotion. In faceting, where the cost of supplies is
small, and the cost of equipment is fairly high, those costs will be
reimbursed by the value of the gemstones produced- and then some. So,
even if you wanted to leave them in the formula, on a per - gemstone basis
those factors get smaller and smaller - and have such a small influence
on the final calculation that you might as well treat them as nothing.
And you needed that stuff to pursue your hobby anyhow.
WHAT'S HAPPENED TO OUR FORMULA?
With time out of it, and with equipment and supplies out too, it's down to
M + P = V, or P = V-M. The Profit is equal to the value of the stone less
the cost of the gem rough
FOUND MONEY
So, any gain in value of the stone over the cost of the rough material is
"found money" - and we'll see that can be considerable, even if the faceter
pursues his activity very modestly.
THE MARKETPLACE CONTROLS
The world of gemstone professionals is the prime influence on the value of
your gemstones (although not the only influence, as we'll see further on).
And that works out just fine. When the original basic formula is applied by
the pro's, they are not plagued by the amateurs' mystery of labour cost.
The pro's labour costs are real and considerable. Unlike the amateur, his
source of income is from his gemstones (and, the gemstone's value contains
the labour of more than just cutters- there are middlemen at various levels
who are not noteworthy for modest lifestyles), Amateurs benefit greatly
from the significant labour costs that contribute to the market value of
gems.
Of course, the pro's add into that formula a significant profit factor,
too. For the amateur and his "found money,"- that's a nice bonus.
There are other factors that affect the value of your gemstones-things
that the pro's don't control- inflation (because that's the way our economy
works, and because of scarcity of rough material) and the uniqueness of your
work (both quality and design). These are significant to the amateurs "found
money" situation. But, the marketplace of professional gem cutting activity
is the main factor (unless inflation really starts galloping along again).
SO, THE VALUE IS SET FOR YOU.
And, what the amateur faceter has to think about, financially, is the
material.
WHAT KIND OF MATERIAL?
Since this is about financial considerations, we will talk about natural
materials. Some faceters predict that synthetics will be valuable, too, but
except for certain highly controlled synthetics (synthetic emeralds, for
example), the financial performance of synthetics has been poor. So, let's
go on to talk about natural materials - and a key element relative to material
- the yield that the faceter obtains.
ABOUT YIELD AND VALUE.
The cost of rough material for the amateur faceter, in relation to the value
of the completed gem, is critical, as we have shown. The faceting yield (the
weight of the finished stone in comparison to the original weight of the
rough) becomes, therefore, a major factor in obtaining a good financial
yield.
An amateur's first efforts will yield about 15%, but improvement to 20% and
much beyond will be quite fast. Customarily, professional faceters use 20%
yield as their rule-of-thumb, and for the present calculation, let's use
that.
Using a 20% yield estimate, you just need to multiply the per carat cost
of the rough by 5 to determine the per carat price of the finished gemstone
that would just recover the original material cost. To use an easy example,
if you purchase a rough stone of 50 carats at $1 per carat, your cost is $50.
The 20% yield will be 10 carats for which at time of sale you would need $5
per carat to get back your $50 cost of material. Obviously, if your yield is
a lot less than 20% the profit gets to be shakier, and over 20% it's all
favourable.
In the original version of this article (done about 10 years ago) I used an
example - and came up with a profit "from 50% to 300% and most typically
150%." To relate that to the $50 above, the finished stone would sell for,
"most typically," $150. That would be $15 per carat. At the low end it would
sell for $75, or $7.50 per carat. The high end is fun to figure out, and I'll
leave that for you to do.
Whether something would sell high, or low, or in the middle, depends on a
number of factors - for example, quality of cutting, quality of material,
design, how anxious is the seller (or buyer). Note, however, that if the
"most typical" price is used, $15 per carat, the cutting yield would have
to fall to less than 7% not to recover the material cost. And, assuming the
low price, a yield of only 13% would recover cost. That's the "down side."
Now, if you want to consider the "up side"-assume a 35% yield (not uncommon
for an experienced cutter), and a good job of performing an unusually
attractive cut (to bring the higher per-carat price)-and that figures out to
a sale price of $525. That's a nifty profit! It's a much more frequent
occurrence, incidentally, than the "down side" situation.
Does all that square with reality? Do a little checking -rough value versus
finished value - and you will see it does. Professionals have given me all
sorts of complicated formulas to apply to the rough-finished relationship -
but they all reduce to about the same thing. Assuming a 20% yield, the price
of the finished stone will average three times the cost of the rough (the
late super-faceter John Cornwall termed it "the three times rule"). Of course,
better yield than 20% provides a nice bonus, as does a specially fine and
interesting cut.
If you figure out those numbers compared to the pay that the professional
cutter needs, you will see they make sense. Now, for you and the time you
may put in, it might or might not be a good hourly wage, but it is a
wonderful payback for an amateur's voluntary time.
Notice that all those calculations involve a percentage relationship which
means that the more the rough costs the more you stand to gain financially.
Now, that doesn't mean go out and overpay for rough. It does mean that if
you cut expensive material, the same amount of work brings a much higher
return of finished value.
ABOUT THE 20% "RULE OF THUMB."
Since the original publishing of this article the 20% rule of thumb has
taken a beating from professional Ultra Tec cutters. We have spoken to
several who promise and deliver 35% yields from random material. That is
an excellent yield, (which substantiates the 35% example used above). These
professionals credit the accuracy and repeatability of their Ultra Tec
equipment. It all works in the favour of the amateur who can reasonably
set personal yield goals at 30% (and perhaps more)- while the 20% rule
is used for easy computation purposes.
SPECIAL QUALITY-AND SPECIAL DESIGN.
The amateur has an edge that enhances the value of his gemstones-the
willingness to spend the time needed for a new design, or an original
design, or a free-form which will yield a high percent of the rough.
That means time-which the amateur has in abundance (and free at that).
It can also mean a "bonus" for originality and execution, since the rare
cut is another type of "rarity."
THE FACTOR OF INFLATION.
In recent years inflation has been a factor indeed. In the 70's inflation
galloped along at a rate of 10% or more, and coloured stones did better
than that. Even when inflation is slowed, as it has been in the mid 1980's,
it is still about 4%. At that slow rate the value would increase about 50%
in 10 years not counting any of the other factors that drive up gem prices
(and tax free-did anyone notice?).
During the 70's several magazines-Time, Forbes, and Fortune-took note of the
investment value of coloured stones. That recognition fuelled rising prices
still more. Then, as it happens in many "boom" situations, unprincipled
speculators took advantage of some not-too-clever buyers (including banks!)
and there were scandals which slowed things down. But, inevitably the upward
direction of prices has been renewed, and in giving financial advice for the
mid80's, U.S. News Magazine put coloured stones high on their list of
investments to consider. That sure helps.
MARKET PLACE TRENDS - ADVERTISING AND PR
As wrist watches have moved from jewellers' shelves to the
electronics stores, and as stainless tableware replaces silver, jewellers
have been looking to coloured stones to replace the lost volume of sales.
This is apparent to anyone who looks through the jewellers trade magazines
(the articles designed to educate the jewellers about coloured stones can
often be excellent, incidentally). In 1985, the industry association voted to
spend $150,000 on PR efforts, not a colossal sum as such things go but
certainly an indication of what to expect for the future. All of this effort
will assure favourable economics for coloured stones in the coming years.
Those efforts won't cost you anything, but you will benefit from them.
SCARCITY OF MATERIAL.
There is just so much of any natural material, so the long range scarcity
is certain. And, it is the "long" in "long range" that should be emphasized.
Recently, we learned of still new gem discoveries in Brazil and Afghanistan.
But, the fact that the amount of material is ultimately limited, is
important.
Is material available? Yes - it is costly when compared with old time prices
(what isn't?), but there is material available. And there are still bargains
for the sharp buyer and for the hard working buyer. If you work with a
reliable supplier, you will be able to obtain what you need-even paying
a premium price for material will ultimately pay off for the amateur faceter
given the value-growth situation that we have been discussing.
If you are interested in the growing value of your gems, scarcity is a much
more positive factor than it is a negative one.
THE FACTOR OF MIDDLEMEN.
In the commercial world of selling there is the cost of the middleman, (or
more than one) who buys from the cutter and sells to the retailer. He is a
costly fellow-well fed, well housed, well dressed and well auto'd. Since you
will be your own middleman, you benefit again from the effect of this cost
on the "market value."
WHEN BEST TO REAP THE BENEFIT-NOW OR LATER?
If you can bear to part with your masterpieces, you have a choice of selling
almost right away or saving them as a "nest egg." It is the nest egg approach
that makes much more sense to me, largely because I have been impressed by
the accumulated size of some nest eggs I have seen. I have seen gem
collections of amateur faceters worth many thousands of dollars more then
the faceter had ever invested. In one case the collection was valued at
wholesale prices at over $50,000 (that was back ten years ago-it's a lot
more now) and the faceter had been a working man all of his life-not a bad
"nest-egg" from a hobby.
The longer one "nest-eggs" his gemstones, the more will be the benefit of
the various forces that drive up the value.
ARE PARTICULAR STONES BETTER THAN OTHERS FOR THE "NEST EGG?"
Certain stones are safer than others. The obvious rule is the more expensive
the stone the safer it is as an investment. The reason for the word "safer"
(rather than "better") however, is that expensive stones might not be the
most productive from an investment standpoint. As financial interest in
gemstones has grown, this interest has tended to carry along even the modest
quartz varieties, and their percentage increase may be even greater than the
traditionally valuable stones. That proved to be the case during the
inflationary years, (as suggested in the original article). Everything
included, however, and considering that the "nest egg" approach is
essentially a conservative one, the recommended rule is: CUT THE BEST
MATERIAL YOU CAN AFFORDand sock it away into that nest egg-let it grow
in value.
In the "nest egg" approach I have only mentioned natural stones. From a
financial standpoint, a collection of synthetics is not wise. Synthetic
materials, as we have witnessed, are subject to reductions of price because
of competition, new methods, and the introduction of new and better
synthetics. I'm not "anti-synthetic." It's OK to cut synthetics, admire
them, practice skills, invent new cuts, use them in competitions, wear them,
sell them, but keep them out of any financial plans.
There is another reason for sticking with natural stones. There is a
mystical attachment that people have for natural stones. It is the same
mystical attachment that makes people love gems in the first place. I once
explained to a friend about the "realness" of man-made emeralds. I explained
they didn't cost so much, looked just as good, etc. I even had myself
convinced. When I was done, she said, "You know what? I'd still love to
have a natural emerald, even a little one." That feeling is something inside
of us.
IS FACETING-REALLY A "PAYBACK" HOBBY?
Some hobbies pay back in a short run, perhaps, but not with the certainty
of gemstones and in the long run, usually not at all. Stamp collectors sell
to stamp collectors, coin collectors sell to other coin collectors. As for
stamps and coins they are expensive enough if you want to buy, but the
selling is something else.
The big difference with gemstones is in who buys them, and who buys them is
not other faceters. Rich folks buy them and they love them. We will always
have rich folks, even more certainly than we have inflation.
WHEN YOU FINALLY DO SELL.
Selling stones is very much like any other buy and sell relationship. It's
worth trying to get some experience now, even though you do not wish to sell
until some future time. This will stand you in good stead, when that future
time comes. Selling a few stones now, in exchange for that experience, is
worthwhile. Hold the high end of your price at least for now. As a "custom
cutter" you will not have a large array of stones, as professional sellers
do, but rather a select group of several varieties. The trick is not to be
desperate to sell. The jeweller has a sixth sense in that regard. You are in
a good position when he says there was a customer earlier in the day, who was
looking for a ring with a stone "just like that." You are in a bad position,
when you say "l need the money."
I said the jeweller has a sixth sense-you do too. Use it. If you have been
used to selling things there will be no problem. If not, you may feel a
little intimidated, but smile and go on in. The gems will pretty much speak
for themselves. You can take your lead from what the jeweller says. Your
price range will be influenced by the market situation at the time. Data on
this situation is published in some of the jewellers' magazines. If you keep
close to other faceters through belonging to a club or one of the faceters'
guilds you will probably keep current on the price situation via the
"grapevine."
When you are at a point that you really wish to sell, it is a good idea to
have a list of your stones. The list should include the material, colour,
size in millimetres, weight in carats, and price. Let the jeweller keep the
list, after showing him enough of your work to convince him of its fine
quality. When he calls for one of those items, you will get a good price
for it. You may also wish to work as a "semi-pro" during your faceting years.
It helps establish a rapport with the jewellers for whom you can do repairs
and repolishing and perhaps some custom cutting, but this is not necessary -
and really a departure from "amateur" status-the subject of this article.
Most of all be sure that your work is of excellent quality. The jeweller
doesn't put on the eye loupe for nothing.
CLUBS.
I mentioned Faceting Clubs or Faceting Guilds. If belonging to such a group
suits you, it is a good idea. Not only will you hear about gem prices, but
about available gem material and perhaps obtain material as a member of
cooperative group. Most importantly, hear what others have to say about your
craft. Opinions of other guild members can be invaluable in bolstering the
shaky ego as well as correcting technical errors.
WHAT THIS ARTICLE IS NOT ABOUT.
I have tried to avoid the subject of professional and semi professional
faceting. I realize this subject has considerable interest. Several years
ago we surveyed our Ultra Tec owners and found a large percentage put
themselves in the "semi-pro" category. That is, their regular income came
from a job or business, but a significant adder came from doing custom
faceting jobs. The variety and complexity of the semi-pro's way of marketing
would probably need a small book to describe. Anyhow, that is what this
article is not about.
EQUIPMENT.
I've already made a pitch for UltraTec and I know if you have bothered to
read this, you are interested enough to conduct a good investigation of
equipment. It is sufficient to say your equipment must be accurate to assure
quality and good yield. It must also be convenient so the work remains a
pleasure and not a task.
BE FAIR! DON'T UNDERSELL!
Just a last few words . . . when you do sell, don't undersell. More than one
professional with whom I discussed this article expressed concern about
amateurs who offer stones at ridiculously low prices. Those amateurs are
people who figured out (or listened to me) about time being free, and then
chose to sell for very little indeed. Don't do that. You should make the
handsome profit this article indicates. The person who purchases a gem is
hardly dealing with a necessity of life, and should pay what it is worth.
Don't be dazzled by making some money-your efforts deserve it.
Also, if you lowball your prices, you will probably be stuck with low
prices on an ongoing basis, so you are doing yourself a disservice. Your
goal, as an amateur, should be to do work of exceptional quality-and
interesting designs-to optimise the return.
Low balling prices is unfair to yourself-and unfair to the professional
cutter who deserves to make a living-don't be unfair. That might have been
you- or, that might be you someday.
COMMENT . . . OPINIONS, ANYONE? feel free.
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