Basic Business Rules: Buying Rough
Buying rough is really the root of the gem stone cutting business. If you cannot buy quality rough and material that is worth the time and effort to cut, well basically you are not in business. Many people do not have a clue and frankly go about buying rough the wrong way with the wrong attitude. Sounds rather strange doesn’t it? But believe me it is true. Very, very few people understand the rough gem stone business and even fewer have the experience and talent it takes to really do rough buying correctly and well.
Like any things in life there are very few people that are at the top of the game. This of course applies to gemstones and rough in particular. This an extremely hard business to not only get into, but to also survive in. It takes millions of dollars and many very expensive years of experience as well as talent to be able to buy and sell rough at dealers levels. Very few people can do this, that is how it is. This is just a fact of life, it should not deter anyone that wants to cut for a living, but it should be a wake up call for the “want to be rough dealers”. Can a person starting out be successful in the rough and cut business? Yes, but you have a long way to go and you may not want to compete at some levels.
My advice is leave the the gem stone rough business to the experts. Trying to hustle a buck selling gem rough is probably the number one largest mistake a newbie cutter usually makes. If a newbie is just learning how to facet, how in their right minds they think they can make money buying and selling rough is beyond me. But many of them seem to think they can.
Many newbies for some reason want to be in, or accidentally get drawn into the rough business. Where they get eaten alive. Here is a simple truth. If you do not have any experience in faceting you certainly have no business trying to buy and sell rough. Besides the fact that a newbie knows nothing about the world of faceting or rough. Remember, you can only do one thing well, two things half as well and so on. So pick one thing and stay with it, faceting or the rough business, but not both. Trying to do both and split your business start up capital, which is usually small for a newbie, is the ideal way to not make money. It is a quick road to ruin. The Corollary to this is buy your rough from the experts. Very few people are real experts in anything and it is pretty counter productive to try to compete against established experts in a field that is as small, capital intensive, and as close knit as the rough stone business is. You should take advantage of other people’s expertise when ever possible, especially when you are learning. Yes, you will pay for the rough and the expertise when dealing with a professional. But believe me paying a fair price to an expert is a lot better than learning the hard way and basically not getting what you pay for.
Listen to the experts and pay attention. Most of them (the real select experts) have more experience and knowledge than you will ever get, unless you spend the same amount of time and money learning as most of them have. If you are wanting to be in the cut gem stone cutting business then that is what you should do. Cut gem stones. If you want to be in the rough business then that is a completely different business and you had better expect the lumps you will have coming. Newbies in the rough business usually last until they run out of money and are picked clean.
Here is a saying in the gem stone business that is very true. How do you make a small fortune in the gem stone business? Start with a large fortune. Think about it carefully. So what do I mean when I say most people do not know how to buy rough? Well there are several levels to that statement, read on.
If there is just one thing that people should know and learn. It is deal with real experts and be willing to pay them. You will learn more faster and make less mistakes listening to experts than any other way you could possibly learn the gem business.
First off as a new cutter wanting to be in the business, a person has no real experience. So obviously they are at the mercy or lack of mercy of rough dealers and everyone else. This is a stage that all cutters must go through when starting and in general with some experience and common sense (hopefully not too expensive) most people will go through it and learn their way out of the tough areas.
Note: Dealing with an honest expert will help you learn much faster and avoid all the common disasters that most newbies do when starting.
Second there are many self promoted “experts” that really have no idea of what they are doing. There is not much hope for these types. But be aware that these “supposed experts” are out there and many of them just have no idea of what they are selling or doing. These “experts” are not only in cut stones but in rough stones as well. I have more than once seen a person that has not even learned to facet properly yet declare themselves in the rough gem stone business. Also many rough dealers do not cut stones, they just buy and sell. So be aware and watch out for these types. Keep in mind there are a lot of both rough and cut stone people that have no clue and frankly are just trying to hustle a dollar. They have no idea of what they are doing or selling, some maybe honest, but many are not. If you do not know what you are doing you will be burned by some of these people whether on purpose, or just by accident because they are clueless. As a new cutter, you are not knowledgeable enough to know the difference.
How do you tell these “self professed experts” from the real experts? Easy. Look at their work, cut stones, rough stones, business size, type, and known works of these people. The real experts will have a lot of well known proof like pictures of actual cut stones, pictures of rough and reputation, people that you know and can ask will have done business with the real experts. If a guy says he has cut thousands of stones or says he is the largest Tanzanite dealer in the USA and has no pictures, proof and no one knows him. Well lets say that kind of guy is probably not what he is claiming. These types are around, so be aware.
That being said here are my rules for buying rough. Here is the number one golden rule. It is not, “How much is that?” This is the wrong question and people get all bogged down in cost, which is not the real issue. The Golden Rule is, “Can I make money on that?” If you can make money on any piece of rough, it is a piece you should buy. Period. Cost is not relevant other than can you afford it. Your only concern as a cutter is can you make money on it?
Buying Rough – Some more rules
Be up front with what you want – You would be amazed at how many times people ask me for things when they either do not know what they really want or do not really want what they ask for. If you are not sure what you want, how can a person sending/selling you rough know what you want? Often people want what they cannot afford and are frankly looking for a steal, they just do not want to admit it. My advice is quit wasting every bodies time if that is what you are trying to do. Grow up, be up front and honest about what you want and what you would like to pay for it. If you describe what you want and what you want to pay for it honestly in the first place. Life is much easier, the rough dealer can say yes, or no right away, or make suggestions. Everybody will much better off.
Expect to pay good money for quality rough
There never is some thing for nothing, there are no deals, there are no steals. I would say that a few more times but the people that are not going to get it are just not going to get it. Quality rough is going to cost real money and be not far off the going wholesale rates of the same rough cut. Why would anyone sell quality rough for much less than they could sell the same rough cut for? It does not happen.
Note: That is a good hint, if you are looking at some rough and you know it is significantly cheaper than it should be (because you know the wholesale cut price) then the odds are pretty good there is some thing wrong with the rough/deal. Nobody will sell rough a lot lower than the cut wholesale price, it is too easy and cheap to have the rough cut and get more money.
Now that being said, there are a few variables that do effect rough cost. The amount (both rough and dollars) being bought and sold, the connections (people involved), the situations (where, what financial shape the seller is in and so on). But in almost all cases you will pay for what you get. Expect to have to invest and spend a lot of time/years building relationships – People deal with people they have known for years and you will not get any inside deals any time soon. Human nature, people do business with people they have done business with successfully before. Connections are near and dear, do not expect to just walk in and make quality connections and do not expect any established dealer to tell you any of their hard earned connections. You just have to do business with people and establish good relationships. That takes a lot of time and business.
The best way to buy rough is in parcel, quality parcels are not cheap – Parcels are the only real practical way to buy quality rough. Expect to have to out lay some significant money when you are buying parcels. By their very definition parcels means multiple stones and buying multiple quality rough at one time is going to cost significant money. Parcels will always have some random pieces, problems and special stones. Learn how to work with parcels and the random stones. You want hand select it will cost more. That is just how it is.
Corollary to Buying Parcels
You can make money buying hand selected rough. Do not over look buying hand selected rough, just be aware that the profit margins are generally smaller and that you have to know what you are doing. The up side of buying hand select rough is that you get exactly what you want, good shapes, low waste and often easier and more profit in the long run. One important point I want to make about buying hand select rough is that as stones get larger you will generally have to buy the rough as selected rough. ALL miners and all dealers (often because they had to buy the rough as selected from the miner) will set out large extra quality rough and want top dollar for it. That is often how I have to buy special pieces, as selected from the supplier, so of course that is how these select pieces will have to be sold. Or you will have to buy entire parcels of smaller less quality rough the get the one or two nice select pieces that are in the parcel to get them. Often you will come out better buying hand select in the first place rather then buying a poor parcel for 2 or 3 stones. This is just how it works. You will find that on quality rough, people will not negotiate much, there is no reason too – Any body that has quality rough can always sell it. The vast majority of rough you look at will be low quality junk. There are very few rough dealers that really carry quality rough.
A rough dealer that carries quality (there are only a few, you will figure out who they are eventually, here is a hint, I am one of them) while in business to sell will not be especially in any hurry to sell quality rough. Again the dealer can always cut it, so why sell it rough? Unless there is a decent profit. Also realize that a dealer like me. I can always put it away for a few years and make a lot more money on it. So I am not ever in a hurry to sell quality rough and no, I will not bargain much if at all. Neither will any other quality dealer, at least not on quality clean rough. The prices will get better for large sales, but not dramatically.
Pay Your Bills Promptly
Paying your bills late is just a good way to never see good rough again. Remember most any dealer selling quality material has bills to pay too. Getting a reputation of not paying promptly will cost you very dearly. You will not see parcels, or have chances at parcels if dealers know you are a slow or bad pay or if you have other problems. like you are a jerk.
Forget about it – Memos are when a dealer will send a parcel or several on “memo” without the customer paying for it. The customer picks what they want and sends the rest back. In theory this sounds fine, but in practice it does not really work most of the time. Why? You will usually find that some one willing to send rough on memo is going to mostly send you junk and stuff they are trying to get rid of. If the rough is good they do not need to memo it, the rough will sell out right and easily in today’s market. Or they can cut it and get a lot more money for the cut stones, which most rough dealers do, whether they will admit it or not. I do not memo for several reasons. Memos are a paper work nightmare, if a dealer has a lot of memos out it just becomes a problem to keep track of things and collect money and rough back. That is not even considering all the time and work mailing and tracking the packages takes. Particularly when there is no certainty of any profit for the time and costs involved. I do not have the time.
Memos create a lot of problems and headaches I just am not willing to deal with. Also putting things on memo allows other people to work on my inventory, basically for free, obviously not good business. So if the rough is on memo I do not have the inventory or money from the inventory on hand. If I do not have the rough on hand I cannot sell it to a serious customer and in my experience most people that want memo are not very good customers.
Last but not least the IRS can and very often is a real pain about memos and they want to count memos as sales and collect the tax. Taxes on things that are not even likely sold yet. This was a huge controversy in the trade a few years ago and it is not gone or really even settled. The other thing about memos is the IRS considers them a “RED FLAG” and will more often then not want to audit anybody that uses them on a regular basis. Needless to say I just do not want any of the problems. So do not even bother asking me for a “memo”. I do not memo, and neither will any other rough or cut dealer with quality material and any common sense. There is always going to be some give and take, but do not waste peoples time or try to take advantage – You request rough and it is good quality and as requested and described. Then if you are too picky or just shopping around and the rough is as described by the dealer. You send it back and you will not be seeing any more rough from that dealer if you do it too many times.
I have actually had want to be “pro” cutters or “new to the business” people order rough from me to “fill an order” and also from other rough dealers at the same time. In one case the person returned my rough, after I took the time to call and discuss the rough in question, in person (at their request) before sending it and describing the rough. Basically this “want to be” was ordering from several rough dealers and wanting to pick one or two pieces and sending all the rest back to where ever it came from. In other words he was trying to work on the rough dealers inventory. The rough in question was under $40 believe it or not. If the rough had been thousands of dollars and this person had been honest and up front about just wanting it on approval, then maybe some thing could have been worked out. But on a piece of rough worth $40? Needless to say I took a very dim view of this colossal waste of my time and this person trying to work both ends against the middle. Not even counting some guy I do not know trying to work on my inventory. I gave this guy the boot and so did the other rough dealers when they found out. They found out because I called them and we had a conversation. Do not make the mistake of thinking rough dealers do not talk to each other.
Note: I have had this kind of thing happen more than once, especially from supposedly experts starting a new business, all I can say if they really have that much expertise in business, then they should know better than to be idiots.
Frankly I have a very low opinion of people that try this. If I figure out some one is doing this I will show them to the door right away. No second chances. They are wasting my valuable time which is in short supply and I cannot replace. I would much prefer they waste my competitor’s time. Life is too short and if these people are wasting my time over a $100 stone that I maybe make $20 on when I sell it. well you get the picture. Remember there are limits, especially to me in particular, I am generally easy going, but I can be cranky, if you try to work a situation from both ends you will get burned, I promise.
I frankly do not need the business and the hassle that badly. Yes, if some one honestly has a problem with a piece of rough or changes their mind, I will exchange or refund it’s not a problem. So will any other major dealer. Yes, this is just a normal part of business and to a small extent expected. But remember fair trade works both ways, not just to the customer, I expected to be treated fairly and honestly from the customer to the dealer. That is how this works, especially if you want to create a quality working relationship. Here is a hint, you very badly need quality working relationships with at least several quality rough dealers if you want to be in business and make money. Some one trying to work the ends against the middle?
For example. Like ordering five stones from five different dealers with no intention of actually buying all the stones and just picking one stone (and a cheap one at that). Well they are wasting the valuable time of at least four of those rough dealers. If I find I am one of the four dealers being messed around with, this person will be shown the door and told they are not welcome back. Yes, this is a true story, it happened. I will not and do put up with it. My time is valuable. Good quality rough is difficult to find and there is a large demand. My advice is do not screw around with quality suppliers, you need them a whole lot more than they need you. Keep this in mind. When I say I reserve the right to refuse service. I am not joking. Yes, I (as well as some other dealers I can name) can occasionally have a very short fuse. So it is best not to play with matches.
I have and will give people the boot if they irritate me enough. Many other people in business will not be as direct and up front about it as I am. With me I will flat out give the trouble makers the boot and tell them. Other dealers? They give people the boot too. What will happen is. They do not return phone calls, they are out of what ever the guy wants, they lost the order and so on, either way the people that try this kind of thing do get shown the exit door, just not as directly as I usually am. Also be aware that most of the top rough dealers know each other pretty well and the word will be passed around. For example the word maybe passed around to all the top dealers like this. “Hey watch for this guy he really wasted my time…” or “This person tried to pull a fast one on me, watch for them…” or “This guy does not keep his word on a deal…”
Keep this in mind. You waste a quality rough dealers time a few too many times and the dealer will not bother with you. Time is always precious and cannot be replaced when some one wastes it. Also do not plan on working on other people’s inventory. It is not going to happen, at least with quality rough. Do not get the wrong idea. I am generally easy to deal with and I try to be helpful, so do most other professional dealers. The point I am making is that there are limits and that you need to realize the limits and be a quality customer to be successful in the gem cutting business.
The bottom line. If you are a customer that people do not like dealing with for any reason, then you will loose out and probably not be a success in your own business ventures. Think about it. Probably the most important thing to being in the faceting business is to have quality rough suppliers. You need them, and you need good quality relationships with the best rough dealers in order to be in business. It is simple, if you do not have good relationships with quality rough dealers, you will not make money.
Many newbies seem to think they can just buy/go direct to the miners or the mining regions and buy quality rough. Very few people can go and that in fact, it is very competitive and takes a life time of connection with people in the business. The ones that can are major rough dealers. Most people cannot do this type of buying and frankly the phrase “A fool and their money are soon parted…” comes to mind for the people with no experience that think they can.
Well, here are a few more things.
Some rough is not available and you will have to buy native cut stones – Sapphire is the main one in this category. No you will not find nice color Sapphire rough, with the exception of a very rare and occasional piece. You want to cut Sapphires in quality and color you will have to learn how to re-cut native stones. This is an experts game and is done by several people I know, but not for most people. Virtually all Sapphire rough of any quality is cut, you just will not find it rough. That is just how it is.
Once you learn enough to know what you are doing, buy, buy, buy – Buy quality only, and plan on investing and holding a few years. The real key is buying quality and investing, if you are serious. Buy when you can, there is never any way to predict what quality rough will be available or when. So when you get the chance to get quality rough buy it. You whine about the price and do not buy quality rough when you can, I guarantee that I and others will buy it out from under you. Things never really get cheaper. So buy all the quality you can.
You should be cutting all you can during this time – Nothing cut, nothing to sell. It is a pretty good bet that most any quality rough will increase substantially over the next few years. Keep cutting the the stones will increase your inventory as well as you experience.
Study what I cut, look in my gemstone section and study. You will see what I have found sells and what works for me. What works for me will work for you.