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+--- Thread: Crafting & Profit Margin – a Finance Primer for UO (/showthread.php?tid=716)
Crafting & Profit Margin – a Finance Primer for UO - Varak - 01-04-2016
I didn’t feel like working this morning so…This guide is really here to show you how to determine what the lowest value to price your goods at. There are two governing principles we won’t cover and those are supply/demand.
The short answer:
You determine how to value your time, how much it actually costs to make an item, and then a minimum acceptable profit margin for that item. Then you simply add them up for each product.
The long answer:
In order to start we need to establish that:
- Your time has value – specifically your “active” or NON-AFK time
- Resources have a value (even if you harvested them yourself)
The main premise is you could use your active time to generate cash, and you could sell those resources to generate cash. Crafting and then selling items must generate more cash than those two activities combined (unless you just craft for the fun of it).
So now we need to set about determining what those values are worth. Setting the resource value is easy. We can usually find posts or see items exchanged in IRC to set pricing. Iron might be 6 GP per, cloth might be 2 GP per, etc etc.
Next we have to decide how to value your time. This gets tricky because there are AFK ways to produce goods, and NON-AFK ways to produce goods. For my AFK production items I always charge a 100% mark-up. This primarily covers the vendor charges, and the costs to work the skill to GM, plus leaves a decent slice of profit. Significant active activities (like a fully marked runebook instead of an empty one) typically runs a 400% mark-up because I value that active time of marking heavily, essentially because it takes time away from other in game activities. Whatever you use to set those values is fine. Just make sure they make sense to you. I also choose to set minimums for specific item types (500 profit minimum for any house add-on deed, 20 per scroll, etc). I need to get paid something for my time.
Now we’ve got two of the three pieces we need to calculate a “lowest price”. The last piece is a failure rate. We are essentially using resource costs to drive the lowest price, so any resources lost in creating that item need to be accounted for. I’ll use house deeds as an example. In my perfect little world cotton sells for 2 GP per, wood for 3 GP per, and iron ingots at 6 per.
So let’s craft a spinning wheel. It takes 75 wood and 25 cloth, so the resource cost is 75*3+25*2 = 275. We divide it by 1 because it has a 100% success rate and it’s still 275. A 100% markup would be 550. The problem here is I am violating my last rule. I need to make 500 on any deed. So my actual minimum would be 275+500 or 775.
Now let’s push it out a bit. A water trough has a 60% chance of being made. Its base cost is 150 boards or 150*3 or 450 GP. If we take the cost and divide it by the success rate or 450/.6 we get 750 which is our true resource cost to make the item. So your “true” resource cost is 750 add in our mark-up of 750 and we get 1500 for our bottom. This essentially tells you that you should never sell a water trough below 750 because that is your base cost to make it. You also likely shouldn’t sell it below 1500 if you value the time put in to get your skill to GM (or whatever percent you use to value your time). Make sure you factor in the resources lost in failures. This is the number one reason people lose money running vendors. They forget those failures eat up resources. Don’t be that guy/gal.
That’s the basics of setting your minimum price. It helps you determine at which point you let the competitor have the business, heh heh. That doesn’t mean that is what you sell it for. The server has very few house add-on vendors currently. That means demand far outstrips supply. In that type of market you can charge far more than your lowest acceptable price.
The only caveat I want to make here is that if you price gouge them now, they will have no problem moving on later when a low cost provider comes out. You could easily get 1-1.5K for a spinning wheel right now. In a month and a little time somebody will probably be selling it around 800. I wouldn’t be surprised if someone popped up selling them for 300. I have no desire to run an add-on vendor again, heh heh. A good price for the spinning wheel might be 850-900 on this shard. You get a healthy profit margin above the minimum. You won’t get accused of price gouging. You don’t have to adjust your price much as the server matures. You’ve still got some room to move down if you want to price match an upstart nearby. Also don’t worry about the guy selling for 300. He’s giving his time away for free. You don’t want to do that. He’ll likely be gone in a few months anyhow when he determines there’s no money in crafting, which based on his pricing is likely a totally accurate (and self-inflicted).
Set a value for your time, understand the true resource costs of making an item, and price in enough profit to keep you motivated while creating trust (which leads to repeat business) with your customers.
Two final points and quite honestly these are more important than settign the right price for your goods:
1. For the love of everything that you hold sacred keep your vendor staocked. the quickest way to lose that customer loyalty you are trying to cultivate is to have an empty vendor one too many times.
2. Make sure your product is neatly organized and never more than two containers deep. Nobody wants to spend 10 minutes digging througgh your vendor bags to see what you have. organize your bags so they can quickly see your goods, and have to open only one container to get what they need. A good example is most reg vendors have a bag for each reg, with a reg beside the bag. A buyer can see within .25 seconds whihc bag has the black pearl he is after. In another second he has your bag open and can see the price. he's done in 5 seconds and happy as a clam.