Artisan Archive
Thread: A primer in economics... a MUST for all artisans.
A lot of folks are complaining about the economy, and let me just say that it's because most folks playing artisan don't understand basic economics (and one or two flaws in the game system).
So, let me start with my brief rant: It makes no sense that clothing does not decay. It also makes no sense that the ONLY attribute for experimentation on clothing is durability... which is completely pointless, sense the aforementioned clothes don't decay. Personally, I'd like to see clothes decay at a rate of 5pts/game day. And I'd love to see some other element added for experimentation... like a way to jump up your color ranges, maybe? (This necessitates a greater color range for than currently available for top tailors and such, though.)
OK, end of rant. Now, down to business.
The first thing is basic economics in a capitalist structure. Cost vs. Value. As a rule of thumb, a manufacturer should sell their items at a base cost of 4x cost to make. This should be your base price for everything. The easiest cost to evaluate in SWG is energy, as it is a pure cost item.
Pretty much the best you can hope for in wind energy is a 50% site, which with the 30cr maintainence fees yields a cost of 1/2cr per unit of energy. This means that the market price for energy should be 2cr/unit. After the initial supply/demand inflation on Valcyn, this is what the price has dropped to. So, at least this part of the system is working.
That means 2cr/unit should be the BASE cost for a manufacturer. If you're selling energy, what you should do is find a merchant dealing in commodities. Or two. These will be your constant customers, and if you're making energy for sale, that's who you should deal with. The merchant will be buying in lots of 1000, 5000 or even 10,000 at at time. Do you want to be nickled and dimed to death at 100 units? Sure, you can sell those at a lot more, but how much of your game time is that going to take? Too much, I imagine. You can list only 24 items at a time on the bazaar and you can't move big amounts in a single sale, as the bazaar limits the max price on anything.
So, the final analysis of energy pricing is: 1) if you make it, you can sell it at 2cr/unit. You can modify this somewhat, but I recommend avoiding premiums or discounts beyond 25%. 2) if you're selling it wholesale, that is buying from a manufacturer and re-selling to other crafters in reasonable amounts, the distributor price should be 3cr/unit. 3) if you're selling it retail, that is in small units to individuals on a sporadic basis, then it should run 5cr/unit.
This 40/20/40 split is the standard under capitalism.
Now we can look at harvested resources. If you're supplying your own energy, keep your trap shut about it and pocket the profits. ;-) If you're serious about making your money from harvesting gas, minerals, etc., then let's assume that you have contacted a merchant and can by power wholesale. So, you're paying 3cr/unit for your power. Add onto this that you're paying a maintainence cost. This is also the level where supply and demand really come into play. As does the value of the resource your harvesting (ie, the stats that comprise the mineral et al).
There are so many variables in play here, like the condition of your harvestor, the richness of the site, etc, but essentially, the base price for all non-energy resources can range from 1cr/unit to 10cr/unit. Most things are really going to be in the 2cr to 4cr range, however. Only those things that are very difficult to find in higher percentages are going to push the envelop.
Th same rules apply to equipment then crafted from those resources. For example, travel packs. If memory serves, this required 50 fiberplast, 5 hide and about 15 in polymers. Total of 70 resources. All cheap and easy to find. So, that makes my cost to manufacture a travel pack to beas much as 210. In reality, fiberplast and polymers are really cheap to come up with so my cost is more like 85cr. Crafters actually have a different ratio than manufacturers... usually 3 to 1. So this makes the crafter BASE price 255cr/pack.
So, the artisan should sell a pack to a merchant for 255cr/pack. He should NEVER sell to the public for this. When he sells to the merchant at 255cr, he's establishing a Suggested Retail Price, or SRP. For this item, the SRP would normally be 638cr/pack. Now, we don't really have a middle-man arrangement for this sort of item in the game, so this should probably fluctuate down a little. 550cr/pack sounds about right to me.
The nice thing is, the market's just about supporting this, now. Packs originally appeared on the bazaar at abut 300cr... much too low. The problem is that they're moving faster than folks can make them, and it's driven the price up. The lowball prices are 450cr/pack. This falls within the 40% discount max that should apply.
IMPORTANT: As artisans, we should police the market ourselves. If anyone ever lists an item more than 40% under SRP, buy it! Turn around and re-sell at market. Do you have any idea how I made my first 10,000cr on the bazaar? Buying all the cheap CDEF weapons and turning around and putting them right back on the market at more than double they're original costs. I spent 1500cr buying all the 50cr-75cr CDEF Rifles and Carbines (nobody wants another dang CDEF pistol). I then sold all but 2 of them back over the course of 4 days at the 40% discount off SRP. I made a killing!
BUT I WANT THE USAGE XP: Do you realize how little uxp you get? Would you rather have 500cr or 5uxp? For the 500cr, I can buy enough materials to make 5 of the suckers and get 300gcxp. Which is a better deal for you in the long run? The bottom line is that uxp is a little tiny perk. I had a day where I didn't craft anything... just spent the day running missions and surveying. I earned a whopping 263 uxp that day. The following day, I spent an hour at the crafting station and made 2200 to finish up my DomArts IV.
If you're not going to sell it at SRP or some reasonable amount near that, just destroy the item... or better yet, use the new PRACTICE option, which gives you the 5% bonus you would earn from uxp. Don't dump it into the economy, as you're only hurting yourself later when you do want to make a buck.
Yes, time required to make an item is also a subjective factor in pricing. That's why you will never get anything close to a unified pricing stucture for items such as structures. People will always value the time required to make them differently.
One architect may charge 70K for a heavy harvester, a second architect may charge 125K for the same item. If both have factories and an efficient resource supply system set up, the difference in pricing is usually based on how much of a "grind" the crafter considers making the item to be.
When you combine this with the always-nebulous "demand" factor, standardized pricing goes out the window. I sell resources (raw materials). These are the simplest to calculate when it comes to production costs. That doesn't meant that it makes pricinga simple exercise, however. The figures for a miner's "per-unit cost" are relatively easy to calculate. You start with your Power Cost and then plug the rest of it in from there. You have to factor in travel and re-deeding expenses for each resource. And you have to calculate such factors as length of time a harvester is set before re-deeding.
When you get a "per-unit cost" that you are comfortable with, you then have to factor in what your time is worth, and that subjective "demand" variable. Some resource gatherers will operate on what I call the "Stockpile and Gouge" principle. They never sell a high quality resource until it is no longer available. Once the crafting community exhausts their supply of these highly-desirable resources, they bring out their stockpile and price stricly on what the market will bear. You can get bitten using this method, however. You may have stockpiled a resource which is replaced in a shift by one that is as good, or better.
If you have the financial resources available, this is not a complete disaster. All you have to do is wait, and eventually there will be a scarcity of that type of high-quality resource, and you'll be able to gouge to your heart's content. Waiting costs you, though. There is a concept called "time/value of money" that comes into play. That stockpiled resource represents an investment of both time and credits. The longer it sits in your inventory, the less profit you are going to make selling at a given price.
That's why I run what I call a "high turnover" resource business. I don't stockpile and gouge. I may stockpile if I don't have a current contract for that high-PE and OQ organic, but I will sell it rather quickly and without gouging. This ensures that I retain a growing customer base, and maximizes my turnover.
I sell for 4cpu, period (in bulk orders, minimum 50K resource units). I could sell for more, but this works for me. It keeps my clients very happy, especially when the resource dries up, and they see the gougers advertising the same products for 8-10cpu. That, in turn, keeps my customer base happy and growing, and contributes to my "high-turnover" business success.
Besides, I never liked gouging 
Of course, this would chang if RMM was a "Public" company, and I had a board of directorsand shareholders to answer to.
I guess I'm only a mediocre Capitalist 
To the thread starter:
Although I agree with your sentiments that alot of crafters in this game have no clue as to how economics work, I find your thinking flawed.
On the subject of power, I would love to be able to get 3cr per unit for the power I have stocked at the moment.
2 creds per unit would be great also.
I am currently unable to sell at much above ONE CREDIT PER UNIT, either in bulk (>20K) or in smalller lots(<10K). There are a lot of factor to this. Mainly over supply, with every free lot given over to wind gens. Also you say 50% on wind? I never place on any less than 60% and have seen veins run to 65%.
When calculating costs on Resources you have failed to take into account what someone running 10 PMH on 60% vein a day, has as base costs in terms of the energy they would need to buy. If they bought at the 3 cr/u you suggest, that would mean that they paid 1800 creds PLUS 720 creds maintenance per 24hrs.
That is 2500 creds for a resource output of around 2K. Take into account the time/transport costs involved in getting to spread out harvesters. 3-4 creds per unit (resource and stats dependant) is a fair base price, with rarity and demand needing to be taken into account.
Now if you are in the situation where you got friends running fusions/solars on their empty lots for you, you can cut way down on those initial energy costs and thus afford to sell the minerals/chems/organics for a lot less than competitors. This forces everyone to drop their prices to be competitive and thus unit prices for energy fall again as smaller dealers try to cut overheads.
2cr p u and beloware standard bulk prices on this server, and prices like these can be even found on the bazaar.
I do agree entirely with your argument for Tailors and the need for item decay rates tyo be introduced on a similar scale to weaponry/armour...
Thus the proffit margin on a T21 is much greater than a medium generic planet house.
Alot of what the original poster says is correct, unfortunately few of the rules apply to SWG
Alot of the examples mention a merchant. 'Merchant' in the context it is used suggests someone who deals in bulk - unfortunately when buying in bulk one _expects_ a discount, sadly since Merchants are not a starting class they have no realy position in the economy.
Because of this Merchants are often buying at the same price as everyone else leaving little room for any discount as the manufacturer/crafter knows he can make the same amount of cash (more if the Merchant gets a discount) selling direct as long as he is prepared to do the leg work himself and doesnt mind selling items in small quantities.
Another thing that throws logic out of the window (without getting into the realm of exploits/bugs etc) are grinders - some players are only interested in xp and place no value on their time or their product. These players _should_ now be using the practice function but the evidence is there that some grinders are still dumping large quantities of in-demand items into the economy at a rate that the competition cant buy up at and turn it around (which is otherwise a fantastic idea) because they know it _will_ sell at that price so they will get a return (however small) on their grinding
Vaedross wrote:
WerrtZer, he's right tho. And 1c per unit of radioactive power corresponds to the 0.17-0.2c cost to produce that I used to have. Now that maint has changed (?) I'm going to have to re-think my prices.
Aye, a Fusion Ion Generator on a 65% Radioactive spot still only costs 1440cr to run and produces 12K+ radioactive power. Running the numbers:
Fusion Ion Power cpu (on 50% spot):
1,440 /9,360 = 0.15 cr per unit
Proposed markup 400% (4x) = 0,6 cpu
Sellprice of 1cr per unit is indeed a 666% markup and fully in line (even higher) as the proposed 400% markup. This does not however apply to WindPower or Solar Power on a less that 50% spot:
Wind Powercpu (on 50% spot):
1,440/ 3,600 = 0.4 cr per unit
Proposed markup 400% (4x) = 1,6 cpu
Solar Powercpu (on 50% spot):
1,440 / 5,760 = 0.25 cr per unit
Proposed markup 400% (4x) =1 cpu
Goff McMerrii
Miner
Another Ivy League economics major spending their studytime on SWG. Lovely.
In the sterile ash can of acadamia, there is some element of truth to the first post. I suppose you could use mathmatical formulas to map your market trends if thats your thing; however, if ya just remember the basics you'll probably have more fun:
1. consider all costs (tangible and intangible) when setting a price - dont sell for less than your true costs unless there is some overriding reason to do so (see below). The cost for the resources for example. If you dont want to fool with tracking harvestor power and maintenance cost, take the lazy way like me. Look at what the resources are selling for at the bazzare, use that as part of your base.
2. consider your intended rate of return (what you want to earn in profit)
3. considerthe market where your selling the items (competition). Note that sometimes competitors sell the same items at a lower price, but your items may still sell. Lower prices by competitors does not necessarily mean you can sell your items at the price you want.
4. considerthe relationship you have with your customers and suppliers.What I mean by thisis just basic customer service. If they like the product, if its reasonably priced (not necessarily the lowest price), and if they are treated fairly, they will come back. They will tell theirfriends too.Suppliers dont exist just to serve you; you must be fair and reasonable in what you pay for goods you use in crafting. Having a supplier leave you high and dry because their not happy is one of the last things you need.
5. dont be afraid to make a deal with a good customer. I have had a number of occasions where I sell an item to a neighbor for less than sticker price, in return I get a deal on something they have or they help me out in some manner.
6. Think of ways to make it easier for your potential customers tocome buy from you. This is more marketing related....advertising, location,product mix, as well as customer service.
Most important.....have fun.
When I first started selling resources, I looked at what other people were charging at and I charged .1 or .2 credits less per unit than everyone else. As certain resources were bought out quickly I slowly brought my prices up on those itemsto the average market price. Some items, like fiberplast and other chemicals, don't sell very well. So, I keep them at 2 cr/unit.
The medics/doctors/bio-engineers have a few basic formulas for figuring out the price of meds. One is heal*charge*(0.075 to 0.2). Another is charge*10+heal. There are others, but both seem to work for me. I usually use the first formula with a multiplier of 0.15 when selling meds. If i can't move an item, I slowly reduce the price until I finally get rid of it.
I have to digress a little. I think its important to consider the cost in making something when it comes to setting a price, however value to the consumer is more important. Lets say you mine all your own resources and buy energy at a fixed price. At one point a specific resource for say an FWG5 is crappy and you can only make crappy FWG5s. However you price at x credits based on the cost for you to produce. Fast forward two weeks, now resources for an FWG5 are great and you can make awesome FWG5s, again you mine the resources yourself and buy energy at the same fixed price. Obviously you should sell the better one for more money even though it cost you the exact same to make since it has much greater value, and people will pay it.
Second example: dusters. Say a duster costs X to make and some other piece of clothing, that nobody wants, costs the same amount, say 200cr. You can easily sell the duster on a lot of galaxies for 3000cr since everyone and their grandma wants to look like neo, sticking to 4x the cost would be a bad decision in this case since such a high value is placed on dusters. However you might only be able to sell the other item for 2x the cost since demand is so low.
Third example: real life SUVs and cars: If vehicles were priced based solely on costto produce,then a Ford escort would probably cost a bit more than they currently do and a Ford Explorer would cost only a thousand dollars or so more. However people gladly pay more for an explorer due to the perceived value. Same goes for luxury cars, a car company can make 20,000 on a lincoln but only 1,000 on a car that costs almost the same to make and is based on the same chasis (sans leather seats and a GPS) but doesn't say lincoln. The lincoln has more perceived value.
So the moral of my rant is, take the value of the item to the consumerinto account when pricing it.
moody628 wrote:
The first thing is basic economics in a capitalist structure. Cost vs. Value. As a rule of thumb, a manufacturer should sell their items at a base cost of 4x cost to make. This should be your base price for everything.
The first thing in basic economics is an understanding of the demand curve, the supply curve, and market equilibrium. There is no "rule of thumb" for pricing of goods, nor is there a standard 40/20/40 split that is "standard" under capitalism. What you have done is taken an observation of income distribution in a contemporary real-life economy and naively assumed that the same will (or should) result in a SWG economy.
It seems obvious that an artisan should not (as a rule) sell items below cost. However, your recommended markup of 300% is not predicated upon any sound economic reasoning that I can find.