Silver Prices Are Up, Profits Are Down: A Wake-Up Call for Jewellers
Why Your Silver Section Needs Immediate Pricing Attention
The silver jewellery segment has long been considered a high-volume, steady-return category for jewellers. However, in today’s rapidly changing market, rising silver prices, increasing manufacturing costs, and unavoidable wastage are silently eroding margins. Many businesses continue to price silver products using traditional flat per-gram margins, unaware of how significantly this approach impacts profitability as silver rates increase.
It is time for jewellers to reassess their silver pricing strategy and adopt a more sustainable model that protects returns on capital employed.
Understanding the Margin Erosion Problem
Let us examine a simple comparison to understand how fixed per-gram margins fail when silver prices rise.
Scenario 1: Lower Silver Price Environment
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Silver Rate: ₹1,00,000
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Capital Deployed: ₹1,05,000
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Realisation After Sale: ₹1,15,000
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Margin: ₹10 per gram
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Margin Percentage: 8.7%
At lower silver rates, even a modest per-gram margin delivers a healthy return. The capital deployed is relatively low, and the margin percentage remains attractive.
Scenario 2: Higher Silver Price Environment
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Silver Rate: ₹3,50,000
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Capital Deployed: ₹3,60,000
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Realisation After Sale: ₹3,70,000
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Margin: ₹10 per gram
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Margin Percentage: 2.7%
Despite maintaining the same per-gram margin, the margin percentage drops sharply. The capital blocked in inventory increases substantially, but returns do not scale proportionately. This creates pressure on cash flow, working capital, and overall profitability.
Why Flat Per-Gram Margins No Longer Work
Silver pricing has become increasingly volatile. When jewellers continue to charge a fixed margin per gram:
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Capital employed rises sharply with silver prices
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Percentage returns fall dramatically
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Inventory risk increases
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Manufacturing wastage eats into profits
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Cash cycles become longer
In simple terms, higher investment with lower percentage returns is an unsustainable business model.
The Impact of Manufacturing Costs and Wastage
Unlike bullion trading, silver jewellery manufacturing involves:
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Design complexity
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Skilled labour costs
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Melting and recovery losses
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Finishing and polishing wastage
These costs do not remain constant and often increase with higher metal prices. Ignoring these factors while pricing products leads to under-recovery of actual costs.
A Smarter Pricing Recommendation
To safeguard profitability and ensure healthy returns on capital employed, jewellers should move towards a wastage-percentage based pricing model, combined with making charges.
Why This Model Works
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Margins automatically scale with silver prices
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Wastage costs are fairly recovered
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Returns remain consistent across price cycles
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Capital efficiency improves
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Business risk is reduced
Instead of charging a flat amount per gram, pricing should reflect the actual cost structure and risk involved in manufacturing silver jewellery.
Long-Term Benefits for Jewellers
Adopting a wastage-percentage and making-charge based pricing strategy helps jewellers:
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Maintain stable profit margins
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Protect working capital
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Improve pricing transparency
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Sustain profitability even during price volatility
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Build a more resilient silver business model
Conclusion
The silver segment can no longer be treated as a low-risk, low-attention category. Rising silver prices and manufacturing costs demand a smarter pricing approach. Jewellers who continue with outdated per-gram margin models risk shrinking returns and increased financial strain.
Revisiting your silver pricing strategy today is not just a recommendation—it is a necessity for long-term business sustainability.
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