Tuesday, November 3, 2009

The Auction House Goblin

A true Goblin in my mind is a person that utilizes conventional and unconventional means to acquire power through wealth. Some goblins work specific markets while others dabble in several. The most common goblin markets are Inscription, Jewel-crafting, Enchanting, and Tailoring. Some goblins say that market domination via their chosen method is the only true way to be a goblin. I say that's hogwash. One goblin in particular is a bit of a hypocrite. Here's my take on building a business plan to succeed.

Inscription is probably the most common goblin market, and for good reason. The cost of manufacture and listing is low while potential profits are high. Currently there are two common methods utilized by most people to try to earn money in the Glyph and Ink market. The first is heavy undercutting using Auctioneer, the second is Mild AH Camping using Quick Auctions 2. Both methods have their merits and both produce profit. I'm going to show you why.

You can figure out the base cost of your main crafting item, Ink of the Sea with a formula before you ever begin to craft a glyph. As an example I will use Tiger Lily. One milling of Tiger Lily has a 100% chance to produce 2-4 Azure Pigment and a 25% chance to produce 1-3 Icy Pigment. First, you must find the mean. (2+3+4)/3 Each possible number is added together, the sum is then divided by the total numbers. In this example we find that 3 is the mean for Azure Pigment and 2 is the mean for Icy Pigment (1+2+3)/3=2. We then take the percent chance multiplied by the mean to find out average per mill. 3*100%=3, and 2*25%=.5 We now know that for each milling we can expect to average 3 Azure Pigment and .5 Icy Pigment. There are 4 millings per stack, simple logic dictates that we multiply those results by 4, we get 12 and 2 respectively. To create an ink we must use 2 pigments thus we divide our pigments in half to give us our final ink numbers. On average a stack of Tiger Lily will produce 6 Ink of the Sea and 1 Snowfall Ink. A Snowfall Ink is equal to 10 Ink of the Sea as per Jessica Sellars. Ink of the Sea is what we will base our market price on so we must then multiply the Snowfall Ink by 10 to get our final ink number which happens to be 16. If you are no longer using Snowfall Ink for Northrend Research you can substitute the AH value of Snowfall Ink for the 10 Ink of the Sea value. Personally I prefer to use the 10 Ink of the Sea calculation, I find it to be a more accurate cost evaluation that errs on the side of profit more than loss.

So, now we know how many inks we will get from 1 stack of Tiger Lily, it's now just a simple matter of finding the cost per ink by dividing the purchase price (or the AH price if you farmed the herbs yourself) by the number of inks. In this example I'll use 19 gold. 19/16=1.1875. We aren't finished yet, we now must find the cost per glyph. I use the cost of Resilient Parchment for this as it is the most expensive at 50 silver. Most Glyphs use one ink and one parchment. This gives us a final cost of 1.6875 per glyph to craft. You need to add 5% to that cost for the AH cut if the glyph sells just to break even. The listing and mailing cost is minimal, I cover that cost by adding another 5% to my cost of crafting giving me a total of a 10% hike in cost of production. 1.6875/1.1=1.85625 I now know that to break even I must sell my glyphs for roughly 1.85, I say roughly because I do not know if I will be charged multiple listing fees and I prefer to err on the side of profit rather than taking a loss.

Below is a chart showing the Northrend Herbs and their milling averages using the formula above.

This is the basic starting point for a business, we know exactly how much our raw materials cost (AH Value) and what our manufacturing and marketing costs are(Milling stacks, mailing, listing, and AH cut). With sufficient start-up capital we have the makings of a business plan. Here is where we decide what that business plan is, what methods are we going to use to provide product to the market and how much time and or effort are we willing to invest. A Gevlon Goblin stands firmly with minimal time investment and using market trending data along with aggressive pricing to maintain a majority market share, while QA Goblins choose a more hands on approach that requires more time and involves more risk but in return can yield larger profits.

Gevlons Strategy

This is a very simple minimalistic business plan. In essence the business owner uses market trend data (AH scans using Auctioneer) to establish a base market value for his product. The Gevlon Goblin then finds the cheapest form of manufacturing available and uses those raw materials to craft items at the lowest cost of manufacture possible. If the Gevlon Goblin is successful in this they can aggressively price their product until the competition either cannot compete or chooses not to compete due to low market share and return. Once the Gevlon Goblin has established a market presence and has few competitors, they maintain a steady market price based on the market average data they have developed using Auctioneer. This strategy does not allow for a volatile market, product is relatively cheap at all times and profits are steady and trend-able. If multiple Gevlon Goblins are trying for the same market they will split the market share between them. This normally continues until one can establish dominance through capital or cost of manufacture, however during this time very little if any profit is realized and there is a possibility of loss due to undercutting manufacturing costs to drive out competition. *QA Goblins are also quite able to go into a price war of this sort as long as they follow the price war.

Quick Auction 2 Strategy

This business plan is also simple but it requires more personal investment. QA Goblins work within a volatile market much like a stock exchange. Values trend up and down based on product availability and demand. Business owners build a solid stock (not as large as a Gevlon Goblin generally), they then market product based on market availability and demand. If the market for the glyph is below the QA Goblins listing threshold the QA Goblin will not list the item, items above the threshold will be listed with a small/minimal undercut to improve their odds of a sale. QA Goblins monitor the market regularly and list/re-list their product based on the current state of the market. Long-term trends do not affect market pricing. If an item is in high demand (in other words, not currently available on the market) the QA Goblin will list the item at a very high profit margin in hopes of a “need” sell. (A consumer that must have the product and will make a purchase regardless of price) QA Goblins that are in direct competition with other QA Goblins split the market based on time investment and timing. A QA Goblin in competition with a Gevlon Goblin will either make their profits during the downtime of the Gevlon Goblin or will compete directly with the Gevlon Goblin until one or the other can no longer compete in much the same style as a Gevlon v Gevlon.

Both of the business plans will work regardless of what some people's opinions are. The honest truth is that these plans can be mutually beneficial to each other. In general Gevlon Goblins list product for long periods, if the product is in high demand it will sell out and the QA Goblin will list their product at their chosen price. Sometimes the Gevlon Goblin will be priced low enough and list enough product that the QA Goblin must either act more like a Gevlon Goblin and compete at those prices or leave the market. Both goblins can win a pricing war against one or the other, it mostly comes down to effort, material cost, and capital.

I'll admit that there are other methods/business plans but, these are the basic starting points that most people work from. Each one of them is dependent on certain types of addons, I am not going to delve into that. If you would like to know you can leave a comment or send me an e-mail via the link at the right.

The baseline strategy I laid out works in all forms of business. You must first find out what your cost is to buy the raw materials or harvest them. You must then determine the cost of manufacturing the finished product. Combine that with the cost to take your product to market and any other overhead such as an auction house cut and you have found your baseline cost to be in business. As long as that number is lower than the market value of your product you will be profitable, assuming of course that you do not price yourself out of the market or worse yet, a competitor has found a cheaper source for raw goods. As a business owner/operator it's your goal to always make sure you are profitable by working to reduce overhead and raw material cost while maintaining or improving market share and pricing.

Expect to put in a lot more work and time than what most people on the web are saying. Competition and server population will have a large impact on your success. However, if you build a business plan and you work at it, you can succeed.

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