Thursday, May 29, 2014

When Is Manufacturing Worth It

I'll admit that when I set up CSM Wire to start tracking the activities of EVE Online's Council of Stellar Management, I didn't expect to learn as much about the game itself as I am.  The latest case involves how the serious manufacturers in EVE either price things or determine whether a product is worth manufacturing at all.  CCP Greyscale created a thread asking for feedback on his plans to adjust blueprint data.  In a post later on after CSM members Steve Ronuken and mynnna gave some feedback, CCP Greyscale posted some of his economic assumptions.  Among them:
"In the case of invention and these blueprint numbers, it's that third point [changes in per-product pricing having a substantial change on the total money being spent on that product] that I am most concerned about; while a moderate increase in end-to-end production times should allow more producers into the market (a good thing), if the supply changes too much there is a high risk of demand changing in unpredictable ways too. My intuition is that an increase of 20-40% in build times is healthy, but above 50% is probably risky. I'm very open to discussion on these numbers though :)"
Normally I wouldn't even know such a thread existed because I hate the EVE Online forums because ... gaming forum.  But tracking Steve's posts, I learned an interesting tidbit.  He wrote
"Increasing build times will directly impact on module pricing, as serious manufacturers don't look at profit on a percentage basis, but instead on an isk/hr level, with a baseline of what isk/hr they'll accept as viable."
That was interesting, because I'm not a serious manufacturer.  I rarely use all 11 manufacturing slots I have on my one industrial character.  I'm more a hobbyist who turns to manufacturing as a way to turn loyalty points or planetary interaction products into items that are worth a lot more.  Or you can look at my efforts as role play as, except for selling liquid oxygen, I don't want to just pillage low sec of natural resources for profit.  I want to take those resources and turn them into something more valuable for sale in low.  Even selling liquid oxygen fits in as locally-sourced fuel is a lot better than having to transport the fuel into low.  Now if I could just keep it in stock... but I digress.

I've always looked at my efforts on a percentage profit basis.  But Steve explained how he decides on whether an item is worth making:
"I take all the material costs (including an average invention material cost) and subtract that from the sale price. I then divide that by the number of hours needed to make the thing. If the total build time is below 24 hours, I normalize the time to 24 hours (As I'm generally logging in once per day.)

"If that doesn't beat (in general) 100,000 isk per hour, it's not worth making.

"So, for an Expanded Cargohold II (it's a go-to example for me.) current material cost is around 148,000 at jita sell prices (the only real way to price things, except possibly components.) The invention cost is around 75,000 per unit.

"Current sell price is around 510,000.

"This leaves a profit of around 287,000 per unit. As I can only make 10 per day, per slot, I multiply the profit by 10, then divide it by 24 to get the isk/hr which is around 120,000 isk/hr.

"If the build time went up by a factor of four, the price would have to go up by around 200,000 for it to remain a viable product for me to make."
So if I've done the math correctly, the minimum profit that an industrial character should make in sales per month is 72 million ISK, or 216 million ISK for an account with 3 characters manufacturing.  In these days of over 700 million ISK PLEX, that's not enough to PLEX an account, so I expect a lot of manufacturers are looking for items with even higher profit margins.

EDIT - As Gavin pointed out in the comments, I only calculated for a slot, not a character. The actual numbers are 792 million ISK for a character and almost 2.4 billion ISK for an account. 

But that leaves a ray of hope for the beginning or casual manufacturer, doesn't it?  The big boys are out trying to make major profits, leaving the smaller, less profitable items to us.  I don't mind, as I see myself as a small entrepreneur trying to eek out a living in low security space.  Besides, I don't PLEX my accounts, so my living requirements are a lot lower.  I guess that makes me low maintenance.  But I also can deal in items without having to worry about competition from people much more serious than I.  Now I just need to make sure I don't upset the traders who can squash me like a bug.

11 comments:

  1. Maths if wrong. 100,000 per hour per slot = 24m per day per char = 72m per day per account = more than enough to plex the account.

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    1. Thanks! Just updated with a correction.

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    2. I used to do this, in fact, before PLEX prices recently went up 25% over the course of a couple months. (I considered 200k ISK/h to be pretty good at the time because I could cherry-pick only the best stuff with my small number of slots.) I backed off on that a bit because I am not IRL poor and needed to build capital, though.

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  2. The what is worth it argument is fascinating. And through the entire thing there has to be some consideration for those who just build because it is fun otherwise Mon maxing will crush the life from casual play.

    It is a good argument.

    And :P

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    1. TL;Dr: the life has been crushed from casual play, and whipped into a tasty smoothy.


      I have looked at manufacturing, and have a friend who is actively involved in fuel block manufacturing. he enjoys it greatly, and does it because it is fun, but the fun is partly derrived from the profit. To put it another way (and actually make my point) except the guy(or whichever gender specific or non speficic pronoun fits best) who likes being self supporting, that is make their own stuff, or cash in LP the casual player manufacturer is already crushed. It isn't profitable in eve (that is profit to able to support the account, or even really buy the ships/equipment training gets you access to) being casual.

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    2. @Sugar - And you were wondering if I would like that post :)

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  3. I ran a large POS 4 jumps from Jita and used to make primarily DC II's and Nano II's, with some capital ship manufacturing next door thrown in for good measure.I was making well in excess of 100K / hour / slot, when the mfg slots were up, but required serious vigilance, due to the relatively short mfg times. Creating the BPC's for invention was the bottleneck. I gave up serious manufacturing when soundwave started the goon campaign against high sec industry and wrecked the RP agents, though I must admit, that killed all industrialists with RP agents.

    Now, the only manufacturing I am doing is convert as much of my LP as I can into 5 run BPC's and get those items manufactured before the slot costs go from 1200 ISK for a 5 run BPC to as high as 120 million.

    Bottom line, that 100 K / hour will not be possible for most industrialists in high sec post July 22. goons and the rest of the cartels will be taking over manufacture of every high margin item in the game. The high sec industrialists will be faced with manufacturing low margin / large size items, such as T1 ships.

    And regardless of what the null sec propagandists say, industrialists crave predictability in manufacturing costs. It is one thing to have to do market PvP not knowing precisely what your sell price will be. That can usually be predicted to within a fairly narrow margin and manufacturing decisions can be based on it. But a serious industrialist buys in bulk to lock in his manufacturing costs, whether it is POS fuel, or raw materials for manufacture.

    That cost certainty is completely blown out of the water with this overhaul, at least for high sec players. The cartels will still have that cost certainty, since slot costs will be defined by how much product is produced in a station / system, and goons et al will lock that down hard. Plus, there is zero doubt they already have the formula that will be used to calculate any slot cost changes.

    Now, high sec players are not only faced with slot costs out of their control, but the huge unknown of whether they will win a bid on a team that will change those material costs / production times. Further, they have the additional pressures of having to decide if constantly moving is part of their business model, and of course the added risk of transporting blueprints and products over longer distances.

    So in essence, high sec (and low sec to a large degree) manufacturers are faced with:

    1, Huge increases in copy/ mfg / research slot costs, whether at a station or POS.
    2. Massive increase in uncertainty in manufacturing costs, due to NPC teams.
    3. Huge risk of predatory pricing by lower cost null sec cartels in all lucrative markets.
    4. Increased risk in transporting blueprints, raw materials, and finished products as distances from markets increase.
    5. Much much higher time required transporting as players try to find locations of low cost mfg further away from the hubs.
    6. Total lack of control over slot costs, and having to decide if a nomadic manufacturing life is a viable business model, fraught with risk and logistical headaches.
    7. Fighting over a much much smaller base of profits as the cartels nail down all high margin items (see #3).

    Yet somehow, CCP has bought into the crap the cartels are feeding them that all these things will increase subscription rates. Does CCP truly believe that the drop in high sec subs will be smaller than the increase in null sec industrial subs, or are they simply too terrified of the cartels to stand up to them?

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    1. I think you're drastically overestimating both the size and the uncertainty we can expect in the slot costs.

      Based on the formula given in the original devblog, we can expect most systems - even in high-sec - to have slot costs of 5% or lower (and probably a lot lower for many of them). A (base) slot cost of 15% requires everything in EVE to be manufactured in just 44 systems; splitting everything over the 93 systems in The Forge would give them a cost of roughly 10% each. Both of those scenarios mean that every other system in EVE - including Amarr, Dodixe, Rens and Hek in the second case - have a cost of 0%.

      Low-cost manufacturing systems will exist in high-sec. It's mathematically inevitable.

      Uncertainty in costs is harder to nail down, since it requires estimates for how frequently people will move their bases of operation - and for how many different systems they'll be moving into.

      However, there are several points that suggest things will be manageable. The first is that the costs are based on a month-long rolling average; even if raging hordes of competitors descend on your system en masse, costs won't suddenly spike. You'll have time to see things coming and adjust if necessary.

      Second is that to have serious fluctuations in the prices requires a large percentage of the game's industrialists to be picking up and moving their base of operations regularly, and for them to not be spreading out as they do so. The same features that make it impossible to max-out costs on more than a tiny fraction of the systems in EVE also make it impossible to seriously shake up costs in more than a (slightly larger) fraction. Having any kind of serious impact on prices will require a significant fraction of total output to be concentrated on one system - and dividing output by the number of systems even just in high-sec averages out to 'not that significant'.

      Teams are the wild card here - they could cause a fair amount of variation in costs. But the good teams are going to be expensive to hire, which will cut into their savings, and there's nothing about them which inherently favours null-sec over high-sec. (Null-sec tends to be more coordinated, yes, but there's no reason we couldn't get a high-sec production cartel forming to buy up teams...)

      (For reference, I'm pretty much a pure high-sec industrialist and am planning to continue as one after Crius - I'm putting my money where my mouth is on this.)

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  4. ISK/hour and ISK/slot is *everything* to the serious manufacturer, with build times being a secondary but important consideration. I'll even slide to lower-effort manufacturing lines under some circumstances. For instance, the last time I took vacation, I specifically set it up so that I could manufacture T2 ammo (which notoriously has a two-week manufacture cycle) during that period because it was low-effort and I could still make some good money even though I wasn't going to be around.

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  5. Remember that Steve is probably bulk building and you are casual building. You should be building and selling a range of products into non-Jita markets where the ISK/hr is generally greater as long as you can diversify and keep selling in a slower moving market. It's a more fun game as you have to keep track of demand (stay ahead of the meta!) whereas in Jita you take demand for granted.

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