Monday, October 27, 2014

Why are larger diamonds so much more expensive?

A customer who recently requested a quote for an upgraded diamond on one of our engagement rings had a good question.  He wanted the 1/4 carat diamond in the standard ring to be replaced by a 1/3 or 1/2 carat stone of the same quality.  My quote to him for both sizes showed the 1/2 carat diamond costing much more than he expected, given my quote for the 1/3 carat one.  He asked why the larger diamond was so much more.

You would think that the 0.5 carat diamond would be about 1.5 times more expensive than the 0.33 carat one, right?  After all, 0.5 is about 1.5 times 0.33.  But, in actuality, the 1/2 carat diamond costs us over 2.5 times what the 1/3 carat costs us from our diamond supplier!  So, even though we don't mark up the larger diamond as much, we still have to sell it for a lot more than the smaller one.
Cross and Diamond Engagement Ring

The other problem is that upgrading from a 1/4 carat to a 1/3 carat is a small jump, and our supplier's cost/carat is about the same for those two sizes.  So, the added cost for the 1/3 carat is fairly small.  But, the cost/carat of a 1/2 carat stone of good quality is, again, much higher than for the smaller ones.  That makes the "upgrade cost" much higher.  Needless to say, the cost/carat goes up with diamond sizes, so a 2 carat diamond is much more than just 4 times the price of a 1/2 carat of the same quality!

Why is that?
So, why are larger diamonds so much more costly on a per-carat basis?  It's because diamonds are not manufactured, but mined.  "Mined" is just another way of saying "found!"  In nature, smaller raw diamonds are much more common than larger ones.  In other words, finding a raw diamond that can be cut to yield a high-quality 1/2-carat finished diamond is much, much, much more unlikely than finding smaller stones that will yield 1/4 or 1/3 carat diamonds.  And, on top of that, a larger raw diamond can always be cut into smaller stones if it contains serious impurities--they just cut the smaller stones from the portions that have fewer impurities.

To work around this cost issue, it is customary for a jeweler to quote a lower-quality stone if the customer wants a larger diamond.  Sacrificing a slightly lower color and clarity rating can lower the price by a huge amount. Once again, it is because of the rarity of larger sizes being found with good color and clarity.  It works the other way around, too:  this is the reason that we use high-quality diamonds in our rings--why give the customer a poor diamond just because it is small?

To learn more about diamond quality as measured by color, clarity, and other parameters, see our Diamond Quality explanation page.

No comments: