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blankseplocked Building below cost, not that stupid really?
 
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Yarinor
Capital Construction Research
Pioneer Alliance
Posted - 2010.01.22 05:53:00 - [1]
 

So I've just taken my first venture into trading, and I've realized how valuable orders really are.

So it got me thinking is it really THAT dumb to build below mineral cost? Let's pull some number out our ass to demonstrate my point.
Lets say there's a 10% markup betwen buy and sell orders on all minerals, and the sellprice of an item is 90% of the minerals sell price. That means by building the item and selling it I will be saving orders (assuming the volume on the item isn't horrible compared to the mineral volume), and still be making an 8% profit.

Did I miss anything?

mechtech
SRS Industries
SRS.
Posted - 2010.01.22 06:32:00 - [2]
 

In rare cases, such as buying tons of rig components, selling a little bit below cost would still make sense.

Your hypothetical example is just that, hypothetical. Margins between buy/sell on minerals are razer thin, thin enough where market tax pretty much leaves them at equal profit. I doubt you'll find many realistic example where it makes sense to sell below cost.

Borun Tal
Minmatar
Space Pods Inc
Posted - 2010.01.22 08:14:00 - [3]
 

Presumably you know your costs, not the tools that typically respond on the forums. Do what works for you.

Lord Fitz
Project Amargosa
Posted - 2010.01.22 08:16:00 - [4]
 

It is quite possible to make a profit on paper while doing something silly. For instance, if someone gave me a Ferrari for free, and I crushed it and sold the scrap metal, I would make a profit, because it cost me nothing. Of course I've lost all of the potential profit I would have had if I just sold the car as it was, but since that's never realised and this is a game, people will do silly things like that.

Yarinor
Capital Construction Research
Pioneer Alliance
Posted - 2010.01.22 11:28:00 - [5]
 

Originally by: Lord Fitz
It is quite possible to make a profit on paper while doing something silly. For instance, if someone gave me a Ferrari for free, and I crushed it and sold the scrap metal, I would make a profit, because it cost me nothing. Of course I've lost all of the potential profit I would have had if I just sold the car as it was, but since that's never realised and this is a game, people will do silly things like that.


Actually this would be more like building a car from scrap metal because the car sells faster than the scrap metal even if the scrap metal are worth more.

Skippermonkey
Tactical Knightmare
Posted - 2010.01.22 11:49:00 - [6]
 

I have a manufacturing alt, and it just hurts my brain too much. It was supposed to be a log in for 10 mins job, set to build and log off, but its not ugh

Buy/Sell orders for minerals take too long to arrive, so i end up just buying the cheapest minerals on offer at Jita and selling my completed items at market average.

Im sure i could be making more 'profit' by actually waiting for buy orders on materials to come through, but i save time by buyign the materials instead giving me a quicker turnaround time on production.

Agh.. just buy my stuff so i can carry on doing lvl4's on my main.

Enthral
Posted - 2010.01.22 16:47:00 - [7]
 

Originally by: mechtech
In rare cases, such as buying tons of rig components, selling a little bit below cost would still make sense.



This statement doesn't make sense to me. One could make all sorts of arguments about what constitutes "profit," but I can't imagine selling something below what it actually cost to make qualifies in any sense of the word.

You can make a profit selling product for less than market value of the product. You can even make a profit selling product for less than the market value of the components used to build the product. But it is utterly impossible for anyone to ever make a profit selling their product for less than it actually cost to make.

Sure, you may want to sell under cost anyway, such as when you discover you can't move your product at the prices you thought you could, or in sufficient volume, and you just want to get as much cash as possible and get out of that market. But doing that, is by definition, taking a loss.

Baljos Arnjak
Posted - 2010.01.22 23:12:00 - [8]
 

If you were building from mineral BUY orders then your scenario works because all you're effectively doing is shrinking your profit margin a bit. If you're buying your minerals from the market and building with minerals from SELL orders, then selling your product for less than the minerals cost you is losing you money. The spread of the mineral prices only matters if it's wider than your products profit margin because you might as well just re-sell the minerals or find something else to build that sells for a better price.

Scout Ops
Red Federation
Posted - 2010.01.23 00:24:00 - [9]
 

Building stuff for profit is stupid.

Lord Fitz
Project Amargosa
Posted - 2010.01.23 16:35:00 - [10]
 

Originally by: Yarinor
Originally by: Lord Fitz
It is quite possible to make a profit on paper while doing something silly. For instance, if someone gave me a Ferrari for free, and I crushed it and sold the scrap metal, I would make a profit, because it cost me nothing. Of course I've lost all of the potential profit I would have had if I just sold the car as it was, but since that's never realised and this is a game, people will do silly things like that.


Actually this would be more like building a car from scrap metal because the car sells faster than the scrap metal even if the scrap metal are worth more.


Maybe, but the amount of effort in building in Eve is more like the amount of effort of having something destroyed IRL. It would be bat **** insane if building in Eve required as much as in life, and you turned materials into a product worth less than the materials, no matter how fast it sells. Assuming you have any decent amount of capital at all patience is worth good isk. People without any are the best customers.

Chainsaw Plankton
IDLE GUNS
IDLE EMPIRE
Posted - 2010.01.23 22:13:00 - [11]
 

Originally by: Yarinor
Originally by: Lord Fitz
It is quite possible to make a profit on paper while doing something silly. For instance, if someone gave me a Ferrari for free, and I crushed it and sold the scrap metal, I would make a profit, because it cost me nothing. Of course I've lost all of the potential profit I would have had if I just sold the car as it was, but since that's never realised and this is a game, people will do silly things like that.


Actually this would be more like building a car from scrap metal because the car sells faster than the scrap metal even if the scrap metal are worth more.


profit vs convenience

it would be a slightly bigger issue if you bought the scrap for more and sold the car for less.

Shadow''Broker
Posted - 2010.01.24 09:28:00 - [12]
 

Originally by: Yarinor
So I've just taken my first venture into trading, and I've realized how valuable orders really are.

So it got me thinking is it really THAT dumb to build below mineral cost? Let's pull some number out our ass to demonstrate my point.
Lets say there's a 10% markup betwen buy and sell orders on all minerals, and the sellprice of an item is 90% of the minerals sell price. That means by building the item and selling it I will be saving orders (assuming the volume on the item isn't horrible compared to the mineral volume), and still be making an 8% profit.

Did I miss anything?


What profit? Let me explain:

Let's say that the buy orders for minerals are at 10 ISK, and the sell orders for minerals are at 11 ISK (10% markup). If the sell price of the item is at 90% of the value of its minerals' sell price, it would be at 9.9 ISK in terms of its minerals. That's a 1% loss. It would be better to sell the minerals to the buy orders.

In general, it makes no sense to sell below cost unless:
- you need to liquidate assets to free up capital or exit the market
- you want to drive others out of the market
- the minerals you mine are free
- you play WoW

I'm curious on how you came out with 8% profit.

Mikelangelo
Gallente
Posted - 2010.01.25 01:08:00 - [13]
 

Originally by: Scout Ops
Building stuff for profit is stupid.


With all due respect, I'd have to disagree with you. Some modules you can make 500k or 1 mil per module. Build 100 in a week, and if they sell, that's 100 mil.

Not only that, but you and the buyer are both happy.

As for the original poster, you are right. Some people do not value their own time and minerals.

That's why it's a great time to build T2 modules. You don't even have to make the T1 item, you can get it on the market for below mineral cost, thus enhancing your profit.

Ain't life grand?

Ben Harrigan
Posted - 2010.01.25 12:51:00 - [14]
 

Its a completely correct observation by Yarinor, but a lot of people miss the point.

'Cost' is not a factor that can be precisely calculated. If you use buy orders as basis, the result is imprecise because most likely some of those items could have been sold at a profit.
If you use sell orders as basis for calculating cost, the result is imprecise because it doesn't take demand into account.

The perfect situation is to just rotate buy and sell orders, without ever having to update them. That would be a great. In practice reselling requires play time, orders and demand may be limited. Selling finished goods at a lower profit margin can sometimes help up demand, cut down on trading time, and save free spots in the order book. Whether this is worth the 2% cut in profit, depends on the specific cicumstances.

Would you rather sell a thousand Trit at a 10% profit, or a million trit at an 8% profit?
Now of course neither of the options will work for Trit, but the question is relevant in many other areas.

Enthral
Posted - 2010.01.25 18:07:00 - [15]
 

Originally by: Ben Harrigan
Its a completely correct observation by Yarinor, but a lot of people miss the point.



There is a bigger point a lot of people miss. If you are forced to use complex math to define your costs, and you're still not sure if you're making a profit, you're in the wrong market. Your margins simply shouldn't be so tight that you need to justify your sell price to anybody, particularly to yourself.

If after my loose calculations I'm expecting to see less than 50% profit, I find something else to build that week.


 

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