Opportunity Cost Part 2
Yesterday's post, Opportunity Cost and Farming - A Listener Question, had some great discussion. Be sure to review that post and get caught up on the topic of Opportunity Cost. Today I am continuing on the same topic as I received a lengthy email on the post. Here is that email in its entirety. I have included some comments in between the paragraphs in blue. Those are my thoughts, not the readers.
Summary
In no way should you craft an item if you can sell the materials for more profit. I'm going to stand behind that reasoning. It is people that are hasty and don't want to wait that drive the prices down below cost. If you are one of those people then you maybe shouldn't be crafting at all. Just sell your raw materials. You will probably get much faster results selling raw materials, since you have a mentality similar to that of gold farmers anyway. Bots, farmers, Chinese farmers, etc. that move mass amounts of goods for prices under floor costs or deeply undercut just to make a sale. Let me get one thing straight. The point of crafting is to make a profit. If you are crafting at a loss, then you shouldn't be crafting. Go back to farming or doing dailies, but then again, you're probably the same guy that disenchants everything, even if the materials sell for less than the item you disenchanted.
Yesterday's post, Opportunity Cost and Farming - A Listener Question, had some great discussion. Be sure to review that post and get caught up on the topic of Opportunity Cost. Today I am continuing on the same topic as I received a lengthy email on the post. Here is that email in its entirety. I have included some comments in between the paragraphs in blue. Those are my thoughts, not the readers.
"The idea that people shaving their profit or even undercutting to "below cost" is wrong is a bit hazy. For someone with infinite gold, playing the patience game and waiting a day, two days, a week to make max profit on one item is all well and good, but for those of us who are still small fish in the pond, nibbling off your prize meals is how we stay fed, get bigger."Undercutting below cost is a poor business decision. Your costs may be less than your competitors. That's fine, but don't undercut the finished product lower than the cost of materials. Just look at the current enchanting scroll market. It is flooded with items posted for much less than the cost to craft. Many people are just trying to dump scrolls they made just to level their enchanting. Ok so maybe you are just trying to recoop a few coins you spent on leveling, or maybe your poorly planned leveling scheme costs you well more than it could have?
"In your example of the guy who undercut the 160g item to 120g with his farmed mats, yes, given the proper time he could move it at 200g, but he also probably farmed enough for a couple. So now that's 2 sales he's made, cash in hand to do more investing, while youre sitting on yours waiting for it to earn money. Is that lost opportunity cost for you? Is that why you call him stupid? Because you're mad he took your sale?"Ok so you farmed enough materials to craft two. So you craft those and sell them both undercost. Congrats! You just lost twice the profit margin you squandered away just because you can't wait a day or two. If you keep the same pattern up, you aren't going to be getting very far with accumulating wealth. And your competitor is probably the one who bought your 2 underpriced items and flipped them for profit because he has patience and you don't.
"Lets use a different part of your scenario. Sell the mats instead of crafting them. Well there's desperate undercutters there too (picked up 10 stacks of cinderbloom at 18g each!) So the guy looking to make a sale NOW sees the mats at that price, and snatches those up and crafts that 120g item instead. It seems to me that in every scenario discussed on gold making blogs, its all about getting cheap mats and crafting them into more profitable items, or using your considerable force of gold to buy all of those cheap mats and bully people into buying them from you at a premium. Both valid methods."Um, you can't change the numbers around just to support your own argument. Given the numbers I gave in the original post, selling materials was the obvious better choice.
"There's really a market beneath the market. There's the slow, plodding, sure thing sales that the journal shows us occur. And there's the deals and steals we talk about on the consortium forums. These are the sales people with less gold live off. Potential profit does not equal actual profit for most people.The market value at any given time is determined by what the current price is at that time. Add-ons provide an average market value, but we all know that fluctuates daily, sometimes by the minute or hour. I know the market value for Accurate Scope is around 3 gold, but I have still sold them for 250 gold.
Its the main reason i think the gem array is irritating on TUJ. you look at it and see "oh, delicate inferno rubies are selling for 169g. ...nope. Those 23 DIR have been sitting on the ah for 2 weeks at that price and some poor desperate schlub with no JC buddy bought one on Monday. Does that really make that the market value of that particular item?"
"But i digress. Opportunity costs is a saloon door. Swings both ways. Its all in what style floats your boat."
Summary
In no way should you craft an item if you can sell the materials for more profit. I'm going to stand behind that reasoning. It is people that are hasty and don't want to wait that drive the prices down below cost. If you are one of those people then you maybe shouldn't be crafting at all. Just sell your raw materials. You will probably get much faster results selling raw materials, since you have a mentality similar to that of gold farmers anyway. Bots, farmers, Chinese farmers, etc. that move mass amounts of goods for prices under floor costs or deeply undercut just to make a sale. Let me get one thing straight. The point of crafting is to make a profit. If you are crafting at a loss, then you shouldn't be crafting. Go back to farming or doing dailies, but then again, you're probably the same guy that disenchants everything, even if the materials sell for less than the item you disenchanted.
