Diamonds have a lot of reputation that follows them anywhere they go – some of it is good, some of it bad. But the one part of their allure is definitely the pricing. When something is as expensive as diamonds are, people will usually automatically connect it to luxury and class.
But not everybody associates these gems with such fancy phrases. What they’re often thinking of is overpriced. So that got us wondering about the whole financial part of diamonds.
How much profit do sellers really make on them? And with that, we came here to ask the main question – How much do jewelers markup diamonds? How much do jewelers pay for diamonds?
It’s a fair question, and it seems like an important statistic that the buyers should know. A lot of people feel that they’re being ripped off because we all hear stories of 200% markups that just make our blood boil! But those rumors might not be as true as we all think, here how it works:
How Much Do Jewelers Markup Diamonds?
The markup on diamonds can vary drastically, and we’re not kidding. They can go from as low as 18% to 200%, though such high numbers are quite rare. But there is a myriad of factors that need to be included. The average markup would be about 100%, which sounds like a lot, but is actually quite fair when you do the math.
And let us tell you, the math is simple but it’s not much fun, especially for the jewelers. While huge companies like tiffanies and other retailers can afford huge markups, smaller jewelers don’t have such luxuries. You heard that right, it’s not all massive profits in the diamond industry.
When you markup a diamond too high, you run the risk of it not selling well. Big companies have the money to advertise well, which helps them sell diamonds at higher prices. But if you’re a small store owner, you’ll probably just have an expensive diamond on your shelf for a long time until you eventually sell it at a massive discount.
But more often than not, you can’t keep the markup low if you want to make any profit. A diamond with a 100% markup may sound like a great moneymaker, but the jeweler that’s selling it might be only making about 5-15% on the sale. It’s still a profit, don’t get us wrong, but you’d have a pretty hard time keeping your store open on diamonds alone.
Because of this, small-time jewelry stores usually make much more money with other items. See, the 100% markup is there to cover all the other costs that it took them to actually get the diamonds to the store.
Diamond manufacturers make a profit of about 30-40% when they sell to wholesale brokers. But those same brokers, when re-selling the diamond, make between 1 and 15%. The best-case scenario for them is to sell to big retail stores.
And it’s not just the big companies that make it difficult on jewelers, weel, it’s not just the physical ones at least. E-commerce sellers can afford to sell at much lower markups, as they don’t have to store the diamonds in any way.
When you’re buying a gem online it’s getting shipped to you straight from the manufacturer. The online stores are basically just the middlemen. But more on that in a moment.
Learn More: Why Is Diamond Resale Value So Low?
It’s An Expensive Process
We talked about how it’s rather expensive for jewelers to actually get diamonds that they can make a profit on. But there’s one more aspect to that whole story.
The process of getting a diamond for the ground and getting it ready to be sold to the jewelers is something that we have to take into consideration as well.
We all basically know how diamonds are graded. There’s the cut, clarity, color, and carat-weight – these are the 4Cs. Now, while these things do impact the eventual value of a diamond, many other factors need to be included.
Firstly, you have to know where diamonds come from, or to be more precise, who they come from.
Diamonds weren’t always as expensive as they are today. There was once a time in which they were priced like any other gem that you can find in the ground.
But in the last 100 years or so, things have changed quite a bit. Don’t get us wrong, a small 1-carat diamond won’t set you back a fortune, but the difference between that carat and some other material of the same weight is pretty extreme.
There’s really only one group that we can thank for the diamond industry of today – the DeBeers corporation. They were a company with a simple plan: take the diamonds that they were mining for, and sell them at high prices (the higher, the better). But they had one problem, diamonds weren’t THAT popular.
But with some clever advertising and persistence, they managed to turn the whole industry upside down. They did such a good job that they pretty much held a monopoly of all diamond sales at one point. They have a good hold on the industry these days too, though there are a couple of other companies that make a profit besides them.
One of the ways that the DeBeers corporation still controls the prices is by having their famous “sight sales”. During these sales, companies buy rough or polished diamonds straight from the DeBeers corporation. They hold ten sights per year and make incredible amounts of money by doing so.
While you might think to yourself that this sounds pretty fair, the truth about how these sales go could change your mind. It’s important to remember that DeBeers is a corporation. They’re not really giving out diamonds that they happened to find in their backyard.
They’re selling diamonds at relatively low markups, sure, but because it’s a private affair, they can ban someone from coming to it. This means that they can make sure one reseller get’s their whole stock at a low-markup wholesale price, while the other one has to pay whatever markup they see fit.
Related Read: Which Brand Is The Best For A Diamond Ring?
How The Internet Changed Things
While we’re on the subject of wholesale prices, we have to mention a new kind of diamond selling that has had a great impact on the industry. Well, maybe it’s BRAND new, but it’s pretty fresh in comparison to the industry in general. And yes, you’ve guessed it, we’re talking about internet sales.
See, selling a diamond through a website has a lot of upsides and not as many downsides. For starters, you don’t have to actually own a diamond before you sell it. Sure, some sellers do have an inventory of diamonds on hand and they go through packaging and shipping internally. But we’re not talking about that type of online selling.
We’re talking about websites like the Blue Nile. If you’re not familiar with the name, here’s a quick description of the company. The website pretty much pioneered online diamond selling way back in 1999. That’s right, they’ve been at it for over two decades (at the time of writing this) and it seems that they’re not planning on slowing down any time soon.
There are other companies with the same business plan, don’t get us wrong. Some of them are doing just as well as this one too – but to keep it simple, we thought that we would focus on the people that started this side of the diamond industry. Sites like this don’t have an inventory of diamonds, as a matter of fact, they don’t own any diamonds whatsoever.
What they do have is a deal with the giants that run the industry. Customers range from regular people to jewelers and actual jewelry stores. They act as middlemen between all these customers, and companies that mine and sell rough or polished diamonds. This way they don’t have to spend money on inventories and warehouses.
The Difference Between Big Companies And Small Jewelers
So what does this all have to do with jewelers and markups? Well, a whole lot really. See, because websites like these exist, jewelers really can’t afford to markup their diamond a whole lot. It wouldn’t make sense, why would you pay more when you can just go online and get the same thing for less?
This further shows how the diamond industry may not be so kind to small-time jewelers. They do make a profit, don’t get us wrong, but diamonds come with more risk than reward for small stores.
Because of this, as we already mentioned, the most profitable thing that these jewelers can do is sell to big retailers. Because of this, the big stores often get diamonds for even lower prices because the jewelers have no other choice than to try and make as much money as they can by dropping the price and basically just getting rid of the diamond.
Now we know that all this sounds a bit dark. Is it possible that there’s no room in the diamond industry for small stores and jewelers? Well, while they can still make a profit and survive so to speak, you’ll rarely catch jewelers making a living with just diamonds. That’s why a huge chain like Swarovski can make a great profit solely on the gem, but your local jewelry store sells everything that they can get their hands on.
This is unfortunately the nature of the business and it’s what usually happens in most industries. Big chains and companies take over and the smaller stores can’t compete. But with all that said, the huge markups and the unfair way the industry is set up, we’re still left wondering about one thing. Are diamonds overpriced? Let’s take a look and figure this out.
Related Read: The Diamond Industry: How Does Diamond Business Work?
Are Diamonds Overpriced?
It is a strange thing to think about really. For almost a century we’ve been convinced that diamonds are the staple of luxury and that they cost as much as they do because they are incredibly rare or hard to make, etc. But that couldn’t be farther from the truth in reality.
See, diamonds aren’t rare, and they are overpriced. Now, we’re not saying that perfectly cut and completely translucent diamonds should be just tossed away and sold for pocket change. But, diamonds are inferior to some other gems in certain ways. Everybody has their taste, we’re not talking about looks and other subjective attributes.
But take rubies for instance. The blood-red gem is much harder to find in nature, it’s incredibly difficult to produce in a labrador environment, and depending on who you ask, wins the beauty contest between the two contestants. Not to mention that it shares most of the physical and chemical attributes. It’s number two on the Mohs scale of hardness, which is pretty impressive on its own.
So why are diamonds so expensive? What gives all these retailers and sellers the right to markup this gem 200%? Well, they’re in demand. We know that it sounds simple, and in a way it is. Diamonds are always in high demand and they always have been.
Sure, that demand may have been artificially created and it’s indeed kept high through some shady tactics. But at the end of the day, people want diamonds, there’s nothing more to it.
And as long as there are customers to be found, jewelry and stores will look for a way to make a profit. We admit, the markups aren’t exactly fair to us the customers, but the industry isn’t exactly fair toward the jewelers either!
And there you have it. We hope that your question got the answers that they deserved and that you learned a thing or two along the way. It may look a bit grim if you’re a young jeweler, but hey, it’s the nature of business.
Sometimes the profits come easy and sometimes you have to work hard for them. If there’s one thing that diamonds and the industry have taught us, it’s that good marketing is pretty much everything!
Read Also: Where To Buy Cheap Diamonds In The World?