Figuring Out My Profit

As I start moving into semi-serious production in EVE Online, I thought I'd look at something relevant to all crafting in MMORPGs: figuring out what to charge for the items players make.  Some players figure they are only making items to level their crafting skills, so they go out, gather up some raw materials, and then price the items under everyone else.  These are the players who think that anything they harvest is free.  Others use extensive spreadsheets to keep track of everything to get the maximum amount of profit.  From my experience all the serious crafters/market players in all games do this.

So how do I do approach this?  I kind of combine the two approaches.  First, I look at the prices in Heimatar (Rens) and Metropolis (Hek) for some idea of what items are selling for.  I then look at the prices in Molden Heath and try to price accordingly.  I do some quick calculations to figure out that I will make a profit and then start manufacturing and selling.  So I see my wallet slowly go up, but I didn't really know why until I started doing the research for this post.  I then was pleasantly surprised when I could actually trace the money back to the individual activites I do.

For my example I chose a relatively simple item to produce, 25,000 rounds of Republic Fusion M.


Mining - First, I need to acquire all of the minerals to make the Fusion M rounds.  So I go out to the asteroid belts in low sec and mine them.  Of course, I could easily do so in high sec, but I'm stubborn.  Here is a breakdown of the minerals required and the average price in the closest trade hub (Hek) when I made my last batch:

Mexallon - 250 units @ 35.77 ISK
Pyerite - 78,750 units @ 12.23 ISK
Tritanium - 59,520 units @ 4.98 ISK

Total - 1,293,947.50 ISK
Mineral price per round - 51.76 ISK

A couple of things to note.  I'm using a BPO that is not researched so I could reduce the amount of minerals needed.  Also, I think the prices dropped.  If I had paid on the market for the minerals, the amount in my wallet would decrease.  But because I mine and refine my own ore, I am just moving too much ISK from one pocket to another.

Manufacturing - Just manufacturing the regular Fusion M rounds is cheap at 5,864.94 ISK.  This raises the final production cost of one round of Fusion M for this example to 51.99 ISK.

The big cost that explains why faction ammunition is so expensive is the loyalty point store.  Once the rounds are made I transport the inexpensive rounds to the station and purchase the good stuff.  For 25,000 rounds I spend 8 million ISK and 8,000 loyalty points.  So how much is a loyalty point worth?  I'm not sure, but for all the faction ammunition sales I've made so far I figure 1 LP = 1,000 ISK.

Where do I get my LP?  From doing distribution missions.  Some may think that's silly, but I found a pair of level 4 agents that like to give out destinations an average of 2 jumps away.  With the average LP and rewards, a conversion rate of 1 to 1,000 means I'm making over 400,000 ISK per jump when doing a distribution mission.  And I don't have to pay for ammunition either.

But what does that mean for the price of my product?  I have to pay 8 million ISK to an NPC corporation and then I calculate 8 million ISK in the LP to ISK conversion when purchasing the faction ammo from the store.  The cost of producing one round is:

Minerals: 51.76 ISK
Manufacturing: 0.23 ISK
Purchase of ammo (ISK): 320 ISK
Purchase of ammo (LP): 320 ISK

So the total cost of producing one round is 691.99 ISK.  But that is not the break even point.  I have to add in transaction taxes and broker's fees.  The transaction tax is straightforward.  I've trained Accounting to V and pay a 0.75% tax on every sale.  The broker's fee depends on 3 factors within my control: my Broker Relations level (5), the standing with the faction (8.98) and the standings with the NPC corp that owns the station (8.22).  If I've done the math correctly, that comes out to 0.22%.  So in order to break even, I need to charge 698.77 ISK.  Anything over that means I'm making a profit.

At this point, the people who believe that minerals (and loyalty points) are free are telling me I don't know how to do math because I'm receiving money for those items, not paying them.  They would argue that at my "break even" point I make 371.76 ISK per round.   Fair enough.  But I'd explain that those are the labor costs of producing that type of ammunition.  Or, in other words, "My time ain't free."

Of course, I'm pretty sure the spreadsheet warriors sitting on their mountains of ISK would tell me my time is a lot more valuable than that.  That's probably true as well and perhaps as I learn the business I'll make more ISK.  But I'm also having fun making things.  I'm back to my EQ2 days when I was one of the biggest suppliers of arrows on my server.  That was interesting.  EVE is even more interesting because I'm doing all of these activities in low sec, where I have to interact with people and figure out who wants to peacefully co-exist and who wants to blow me up into a cloud of pixels.

So that's the cost of producing a fairly simple item in EVE Online.  I think the same principles apply accross all MMORPGs.  Some games have bad economies where crafting is a pure money sink and not worth the time.  Fortunately EVE is different and I can turn a profit for some modest effort.  I just need to figure out what the profit is.