Inventory is such an instrumental part of the jewelry industry. If you’re not controlling it, you might as well light your money on fire. There have been more reasons than I can count that losses occurred due to a lack of control. I have seen sellers not invoice for pieces (meaning they didn’t get paid either) because they “didn’t realize” they had been shipped out or picked up. I have seen pieces become lost at the store or in transit, and I’ve seen products paid for multiple times, all because there was insufficient control on the inventory. And the only thing to stop the loss is to learn about it so you can learn to control it. Not only will these ideas help you in the jewelry industry, but any industry that you’re selling merchandise (i.e. inventory), I just happen to love the jewelry business!
- Determine which type of inventory you currently have, periodic or perpetual. Periodic means you adjust your inventory counts on occasion, either at month end, quarter end, or year end, typically right after physical inventory (if that is done, which it should be!). You don’t necessarily know what you have on hand at all times because you have made purchases and sold some things. Only the one or few times you do inventory a year, do you actually know what you physically have to sell. Perpetual inventory is updated on a continuous basis. You maintain records of what was purchased, adding these to your inventory counts as they are received and removing inventory pieces as they are sold. This is important to determine which inventory type you currently have and know that the perpetual (continuous) system is what is recommended for controlling what is probably your highest valued asset. If you are not perpetually updating your inventory listings, you are bound to lose pieces. Without perpetually updating your inventory, who knows what other kind of disasters can make you lose money in this category?!
- When you have a physical inventory, how is your jewelry valued? Is is valued by LIFO, FIFO, or weighted average? Again, this is an imperative piece of information to know. LIFO seems to be the most popular inventory valuation across retailers. However, in the jewelry industry, a weighted average is typically used because the jewelry industry (especially gold) is so volatile. These valuations are important to in order to ensure you’re selling your jewelry to make a large enough profit to be worth your time.
- You’re sales are awesome, through the roof in fact! But how much profit did you make off of that sale? Do you know what the COGS or what the profit margin typically is on a piece or set like that? Do you know the profit margin percentage you want to make on a piece or even collectively? Knowing these data points allows you to encourage sales at higher profit margins and set goals to work toward. Continuous tracking of this information also allows you to catch those pieces that might slip through the cracks. It can help you monitor costs and influence business decisions based on data, not just a “gut feeling”.
Simply knowing these few data points about your jewelry inventory will give you a HUGE head start to controlling your inventory. And once you have this knowledge, you can begin to focus on making financially wiser decisions that will lead your business to great growth!
Thanks,
Lacy N Showalter, MAFM
LNS Accounting & Business Consultants 