Instead of just spouting big words and catch phrases at you I’m actually going to explain what they mean and how they relate to your game play. After all is said and done you should not only understand opportunity cost but also the ins and outs of what your time is worth in game.
I’ll preface this by saying I’m no expert in professing economic terms and defining them as I've never taken a class in economics in my life. I am however an expert in developing methods that work and are practical. So if what I say doesn’t seem to perfectly match the status quo note that it’s done on purpose because that’s what works for me and will work for you. Being different is not a bad thing on the auction house.
“I farmed it so it’s free. I proc’d it so it’s free.”
If you farm something it’s not free because it took time to farm the item and that time is worth something. Let’s say you farm twenty eternal fires in an hour on your hunter. You can now say that your one hour was worth the gold you’ll get from selling twenty eternal fires (ignoring time spent auctioneering and mailing the items as it is rather small). If you say that you can post those eternals for 10 gold each when the market is 30 gold because you farmed them for “free” then you are ignoring opportunity cost. You are selling yourself short big time and reducing the value of that hour you spent farming. Instead of being worth 600 gold you have reduced the value of your hour of work down to 200 gold. Nothing is FREE in this game unless it costs you zero time to acquire it (a gift would be considered free and that’s about it). Procs from alchemy or other professions are not freebies. They are a mathematically predictable number of additional items you will get when transmuting or prospecting or anything else. They make the method you are performing more valuable which is not to say they are adding freebies to your normal rewards.
What people do with their “free” stuff is the real problem. More often than not they post items for ridiculously low prices in order to get gold right away. You probably take advantage of their mistake with a well defined snatch list.
Opportunity cost is how much gold you could be making with your time. If you can spend an hour farming eternal fires but you do it farming eternal waters then you have reduced your opportunity cost by the value of the fires minus the value of the waters. This is of course assuming that fires are the best thing to farm with your time based on competition and pricing. If you choose to drastically drop prices then you also lower your hour’s worth to far below your opportunity cost.
Bigjimm from P3P did a great job on the last Call to Auction podcast describing oppurtunity cost in a more technical manner. I'm just an orc, small words work better for me.
“This item makes the most profit for those mats, only sell this item.”
There are people who take this idea to the extreme and limit their professions only to a single market or whichever item is worth the most gold for their time. This is 9 times out of 10 a horrible mistake. Let’s take felsteel sets for example. One commenter argued that selling felsteel rods was much more profitable than the felsteel sets and sold more often so therefore they weren’t going to craft any of the armor in favor of the rods. First off, can you sell as many rods as you can make in a single day? Let’s say he can craft three rods per day based on how much fel steel he can acquire then he probably could just sell the rods and that would be maximizing the opportunity cost of his time. But if he were farming and gathering far more mats and creating a dozen rods per day he probably would end up with quite a bit left over and that’s ignoring additional competition from other auctioneers. Once you reach the point where you have too many items in one market to sell per day you need to diversify your efforts and that’s where less profitable items are worth selling. If he diversifies into felsteel sets and still maintains his feliron rod market he will be getting the maximum amount of return on his investment each day. There are other feliron markets but that’s just a quick and dirty example.
“I AFK-Craft and AFK-Post so it took me no time to make my gold.”
Time for the next fallacy of auctioneering. AFK work or automation does not mean you somehow didn’t spend time crafting or posting or collecting gold or whatever you have automated through addons. If you don’t include this time in your gold making analysis you are lying. If you for example make 4k gold a week crafting glyphs through “automation” and “afk time” you still spent that time and must include it in your gold per hour calculations. This lie also includes those players who don’t have addons and hit “craft all” in their professions tabs. The idea that if you go off and clean your house or walk the dog or do any additional activity while your character performs actions in game is not spending time is ridiculous! If I have to go do something outside of the game because my toon is spending a half hour posting auctions then I am not spending time doing other things in game. This gets back to opportunity cost and what your in game time is worth. AFK work is still time used in the game that could have been used doing something else. If the thing you’re doing right now (including afk work) is maximizing your efforts to make gold then it was worth your while but it still has to be measured up against what you could have been doing in the same time.
NOTE: The changes to addons in 4.0.1 have greatly reduced the opportunities to AFK-anything. Please keep this in mind as the post today was written almost a month ago. For addon help and a list of currently working addons read this post.
The counter to what I’m saying is to put a price on your real life time which you spend in game. Sadly this is just not an argument anyone can win because it’s too subjective and based on a person to person basis. For those who work they have even more factors to worry about when deciding what their time is worth. Trying to fit this discussion to every person out there reading this is just not worth the herculean effort and will probably not do much to improve your gold making skills so I'm going to drop it all together.
Learning from these Lies
Farming is an acceptable way to make gold on the auction house, and so are diversification and using addons. However, knowing this is not enough; you need to also decide what to do with your time in order to maximize your gold earned. Understanding the best methods and identifying what your time is worth (that’s basically what opportunity cost is) will make you a much better player. Be sure to also note that things change over time and one day it might be worth your effort to farm instead of playing the auction house or vice versa.
I hope this information has armed you with the knowledge necessary to take advantage of players who succumb to these lies. Buy out cheap items from rushed farmers, ignore trolling whispers from people telling you that you're doing it wrong with regards to undercutting or time spent on the ah, diversify your portfolio and last but not least: include afk crafting/posting/mailing time in your calculations when determining the best ways for you to make gold.
Have you seen these lies in action? Do you believe them to instead be truths? Speak your opinion in the comments section.
24 comments: on "The Three Big Lies of Auctioneering"
Uriul said... October 18, 2010 at 8:36 AM
"If I have to go do something outside of the game because my toon is spending a half hour posting auctions then I am not spending time doing other things in game."
I think that's an odd and possibly unhealthy way of looking at your game time. "I have to go wash dishes now, my character is busy transmuting titanium" or "I have to walk the dog now, my character is making Inks of the Sea"...
I would hope you were planning on washing your dishes and walking the dog anyway. Unless you consider allowing WoW to take over your life as the benchmark for gold/hr (sleeping? 0g/hr! count those hours in your average) then there are some things that you could do in-game when you would otherwise not be logged in at all.
Otherwise, good article.
lancore said... October 18, 2010 at 9:09 AM
So, lets say I go out shopping. I have to do that anyway.
I could either not be logged at all or I could queue some saronite bars (or whatever you could do in your afk time).
"but it still has to be measured up against what you could have been doing in the same time."
Well, the only alternative to that is idling in dalaran since you aren't at home doing things in your real live that you have to do anyway. So it is indeed "free" and shouldn't be in your gold/hour calculation
Crusard said... October 18, 2010 at 9:10 AM
I agree with everything except the “I AFK-Craft and AFK-Post so it took me no time to make my gold.” bit. I am not an economics major but I took Macro and Microeconomics in college. I think that anything you do "manually" is opportunity cost deductive. Automated commands that require no supervision (laborless) are pure profit. /played time is not conducive to Gold-per-hour when you talk about WoW-Economics. if that was the case then you could not count the gold that you make while offline.
The AH is EBay. You post, you watch, you collect, and you repost. You can 5-box the AH and the time ratio is exactly the same. If I am an online marketer and I sell 48 items for 10 dollars each I don't tell people I made 20 dollars an hour. Whatever time I spent engaged in, cognizant of, control of my business is my labor. I divide that by the total monetary amount earned for my "net" income.
"AFK" is what it is; free labor with zero investment. Just ask a professional botter. Later Marcko!
Izzie said... October 18, 2010 at 9:20 AM
I have to agree with the above commenters. The only time AFKing and doing things IRL isn't cost-effective is when the reason you're doing things IRL is because you've got a huge craft queue to work with.
As one of those 9-5, apartment dwelling type people, if I've got to go cook dinner, run to the store, do some laundry, clean up around the place, etc. and I decide to spend a few minutes setting up my crafter or scanning the AH while i'm doing errands, imo that's most definitely time/cost effective.
But other than that, really great tips here.
Wayne said... October 18, 2010 at 9:24 AM
I must say i have a bit of an issue with your AFK theory.
If you are doing it while totally afk .i.e. using craft all, then it's time free.
Using your theory you have to also calculate how long an auction takes to sell in your time equation as it also takes time, even though you are afk from the process.
If your not contributing any time or effort to the action it is not taking up your time and if it gets in the way of doing other things in-game then you are simply badly organising your time.
You organise your afk crafting around times you wouldn't normally be doing anything in game.
You then get extra benefit from making use of time you would usually not spend in-game due to other commitments.
So your not doing it instead of something else, your doing it AND something else.
Your theory does work in some way if you are semi afking.i.e. watching TV while pressing a single button repeatedly for example because it still does take some effort/input from yourself although really that is not a time equation it is an effort equation, it's costing you effort, not time as again you are regaining time that would otherwise be wasted by multitasking.
WoWMidas said... October 18, 2010 at 9:41 AM
Good points!
As for the relative value of afk/semi-afk activities, another way to look at it is that there moneymaking activities that allow you to spend time doing things in RL. One that jumps to mind is fishing. I can fish and watch TV at the same time. Might fetch 200g per hour instead of 500g per hour, but I'm getting to do something else...the fact that I'm not maximizing my gold is ok - I'm getting something else done.
Markco said... October 18, 2010 at 10:26 AM
I totally understand where people are coming from with the whole hit a button, walk away and do something, come back and the action is done. I just don't think you can't count that for your gold per hour is all.
Great points everyone, I love reading the well thought out and constructive discussion on this site.
Tel said... October 18, 2010 at 10:26 AM
I understand where you're coming from on the AFK time issue. The time required for your character to craft stuff is time you would otherwise not be playing the game in some other way, be it farming, AHing, raiding, PVPing, etc.
If you're instead AFK-crafting, where you're making dinner or cleaning or whatever, that's time that YOU aren't actively engaged in the gold-making effort. Your character is, and thus, it really is a required amount of time to make X gold.
It's almost as if there should be two stats: "Active Gold Making Time"(time when you're actively engaged in gold making, i.e. setting up crafters to AFK craft and AH time) and "Required Crafting for Gold Making Time"(All the above, plus the time crafting actually takes your character to perform). Minimizing AGMT is probably what you can do to maximize gold/time, since crafting time is required to even make gold, but it's not the only stat worth tracking.
Anonymous said... October 18, 2010 at 11:15 AM
AFK time isn't free. But unless you have so many AFK projects that you're giving up playing time, it's a mistake to compare it to gold per hour.
It's more like transmutes. In alchemy you get one transmute a day which you can spend any way you like (making an epic gem, changing an element, etc.) You could sell it in tradechat, or use it to change something into something more valuable.
It obviously has a value, although you can argue about just how valuable it is.
Likewise if you log on before going to work, you have 2 AFK windows a day, once when you leave for work, and once when you're done for the night. Each of those slots have value, and you can decide how to best use them. It's only if you need more than your obvious AFK slots that the cost of the extra slots can be argued in terms of gold per hour.
Doing things AFK (ignoring the time to log onto the right char and fiddle inventory) isn't "Free", but you can't argue that it has a cost per hour. It costs you just as much to make 100 inks AFK as it does to make 750 inks AFK (the 25 min maximum) unless you have so many things to do AFK that you're giving up game time.
Most people lack the volume and diversity requiring them to create more AFK opportunities. So long as they save their pigments until they have 75 stacks, or save up their saronite ore till they have around 50 stacks, they have enough AFK slots to craft without any additional hardship.
Peter said... October 18, 2010 at 11:39 AM
I'd add a third point to the first lie for "I'm coming even on my investment, therefore I didn't lose anything." This one I sometimes see even from experienced auctioneers. It's the deceptive idea, that it's always worth buying something if it's at or under the vendor cost.
As with "I farmed it, therefore it's free", you also have to take into account the amount of time you need to spend to transform investments into gold. This may simply include buying the auction, getting it from the mail, and selling it to a vendor. It may also include mailing it to another character to smelt ores into bars, and the time spent on smelting.
That's not to say it's a bad idea at all to buy stuff under the vendor cost. If you can potentially use the bought items to make even greater profit through other methods, then the vendoring option is still there as a backup if you can't make a profit off the items otherwise. If you buy saronite ore for 12g50s per stack, you can at minimum make your investment back by spending a certain amount of time. But during that means spending time making no profit.
So buying things to vendor is not automatically worth it, but is worth it if:
1. The vendoring option is your backup plan, and you have plans to make a greater profit from the items through other methods.
2. The profit from vendoring is enough to compensate your time spent.
There's a subtle difference between this, and "always buy everything at or under the vendor price", but it's there. Otherwise you may end up thinking it's profitable to purchase, smelt, and vendor saronite ore at 12g/stack.
Roboticus said... October 18, 2010 at 11:46 AM
Econ phd student here, and I've been following this discussion on AFK/opportunity cost here closely. I think the reason it is hard to nail down is that unlike in real life, where the day always has exactly 24 hours, your wow character's day varies by how much you play.
If you ignore AFKing for a moment, your average player's total utility (happiness/money) generating activities would be split evenly between wow time and RL time, and moreover, each hour spent in wow is one less hour spent in RL. Of course we generate utility from both RL and wow, and so the "rational" player will seek to maximize utility by making sure the marginal rates of substitution between wow and RL are equal (this implies a maximum value).
Where this gets tricky is that when you are AFK crafting, you are actually increasing the total number of effective hours in a day by being in wow and RL simultaneously. Say, for example, you are able to be 50% as productive in wow while AFK and 90% as productive in RL while tending to your AFKer. This means you are generating 40% extra time in a day.
So, back to the point at hand of how this affects calculating profit. The fundamental problem is any profit/utility function has to be specific to the economic "space" it is describing. If you never AFK craft, a standard productivity per wow-hour model is fine. However, if you AFK, you now have to have a 2-sector profit model that calculates the maximization of RL utility and wow gold simultaneously (converted into RL utility equivalent). This is nearly an impossible calculation of course. But if I were to suggest a simplified way of accounting just to have a comparable measure, I would say you should calculate AH profitability by: GoldEarned / (non-AFK-hours + (AFK-Efficiency * AFK-hours)) where AFK-Efficiency is some estimate (I used 40%) of how much less productive your toon is while AFK and how much more productive you are in RL (the 90% figure). The efficiency measure captures the truth that even if you are cleaning your flat, you still have to run from the forge to the bank when your bags run out of saronite.
And how this stacks up to profitability? It would mean Gevlon is in fact grossly overstating his profit per hour, and also that Markco is understating his by counting AFK time undiscounted.
Markco said... October 18, 2010 at 12:03 PM
Roboticus:
A+ + + + + + +
unnamed said... October 18, 2010 at 12:41 PM
"Procs are not free"
Truth. I do, however, account for the reduction in my per unit material cost as it is offset by procs. Let's use flask of endless rage as an example. Assuming a raw material cost of 7g for 1 flask (14g for 2 flasks since you always get at the very least 2 flasks if you are elixir spec), there is a formula you can use in an excel sheet to see just how much a proc will reduce that per unit material cost.
(([unit cost * procs]) + (-[unit cost * YieldNoSpec)]) / [YieldActual]
The rule of thumb here is to treat unit cost as a negative number and cost of procs as a positive number for addition purposes.
When a proc happens, you are getting more bang for your material buck, in essence lowering your material cost since you get more yield for the same amount of raw mats.
The key takeaway from this is that you do not approach your procs as "free money" and just sell them for dirt cheap since they cost you nothing to make. That is a fallacy.
Rather, what you can do when you get procs is to say assuming I want at least 2g profit per flask, with no procs I could sell for no less than 9g per. If I got 19 procs out of an expected batch of 100 flasks though, I could then sell my flasks for 6.76 per and still get 2g profit. This calculation lets you know where your adjusted break-even point is, allowing you to compete more effectively against any AH competition looking to drive prices down.
Crusard said... October 18, 2010 at 12:47 PM
[Crusard kneels before Roboticus]
Crusard said... October 18, 2010 at 1:25 PM
I have a serious problem with the last poster regarding procs. [cough] Procs should be ignored completely as a means to provide a better value to your customer. Simply undercut the market by 10 silver or so and thank your lucky stars you have 119 to sell instead of 100. You lose 2.24g per flask and that is not including the almost 200 additional gold from the procs! Market is law...always. Always always. Leave the Excel spreadsheet alone and trust your AH scan information. All you do by posting that low is sabotage the market and shoot yourself in the foot. [wink]
Unknown said... October 18, 2010 at 3:15 PM
you should consider procs as a baseline of profit not individually as in the end that's what it all comes down to. if you make 15% more profitability over a curve. if you look at it as well this time i made a bunch of procs so i can undercut more, then you are only hurting yourself in the end.
Wayne said... October 18, 2010 at 5:27 PM
Peter brought up a very good point about buying to vendor and i see many people falling into this trap.
On the occasions i do specifically buy to vendor i build a markup value into that strategy .e.g. i will buy up to 10% less than vendor cost to ensure it is always worth the effort.
Obviously that % will vary dependant on the item, the effort to be spent on it and its end value.
Personally i tend to buy items below vendor value as a "no risk" investment, or to be more precise a very low risk investment. Much like my continued stockpiling of saronite ore, which in worst case scenario i can make a small profit from any i stockpile but if i wait i am likely to get a significant return on my investment.
I may have wasted a bit of time but i can get my gold back and at least a small amount of gold for that time, it will never be a loss, only a sub-par venture.
Touching on procs are free as there has been bit of discussion about it.
The procs are free philosophy is not totally a bad philosophy in itself...if used realistically...it can be a simple way to guarantee a profit.e.g. i can make titanium for 10g a bar, in all my uses of titanium i value it at 10g per bar, it actually costs me around 8.3g per bar so every time i sell a titanium bar in one form or another i am guaranteeing around 20% profit from it.
If you wish to get into the nuts and bolts of it it is obviously a very simple way to do it but if your interested in simply ensuring a decent profit, working on the basic principle of procs are free is an easy way to do this.
As pointed out in the original point though the issue comes not with people using "procs are free" as a simple calculating method but when people combine that with seeing no intrinsic value in items gained through procs and thus feeling they can sell them at any price and see it as getting good value from them. This is more a sign of their overall lack of knowledge and understanding of value [in the game] rather than the philosophy being simply bad.
The idea is not bad in itself, it's only bad if used in a none realistic way.
Bristal said... October 18, 2010 at 6:25 PM
The cost of AFK time is highly variable and individual. Certainly if you play all day and don't work, having to go AFK for 30 min is a low cost to you since you can take that time to do something productive like your laundry.
Still not free, but very low.
I work and have family obligations, so I only routinely have about 3 hours a night/3 days a week to play.
Therefore having to walk away from the computer for 30 minutes to craft is a much higher cost for me.
Colin Edwards said... October 18, 2010 at 6:44 PM
Lol all these comments on "AFKing"
Let me clear this up for you.
If your Mind is on WoW then its time spent on wow. If your Mind is not on wow then you arnt spending time on wow your spending time on somthing elce. ^^
e.g if you are shopping and decide im gona set my stack at 15g today rather then 10g thats still 5 secs spent on wow weather you like it or not :D
Same goes for botters reading up on new botting software! ^^
Simbaria said... October 18, 2010 at 7:06 PM
Other factors can change the value of your time. Wow is a game, not a job to most of us - therefor, some of the time, you are hopefully having fun.
If, for example, you are having fun farming herbs at x gold per hour, but you could be hating milling and glyph making at 5x gold per hour, which is the better activity?
Maybe if you find picking herbs relaxing, you should do that.
Another way that things might be considered 'free' is if they are a side product of another process that you would do anyway even if the side product didnt happen.
For example - leveling up a profession. What you are actually crafting doesnt have to have a value, in itself, if the purpose of crafting it is mainly to level up your profession. Thus, anything you can sell it for is a bonus.
Michael said... October 18, 2010 at 7:33 PM
The discussion about AFK formulas is very interesting, but I'm curious what the gold-making "take-away" in the third point. As that is the primary reason for this blog post, right?
The first two are great points. "Time is money, friend!" is very relevant for any gold maker out there.
And the comments about diversifying your crafting and prioritizing profit potential with how many you're able to sell per day, that's also valuable understanding.
But, let's say we all agree with you about the AFK thing. What are you really saying here? Don't automate? Don't go afk when you're making 500 IotS? I know that's not what you're saying... but what is your point? I don't see anything there that directly helps people increase their earning potential.
I guess I can see that if someone is deciding what markets to work and they simply compare Marcko's gold per hour with Gevlon's, but both are using different formulas to calculate the same thing, then it's relevant. But that's a bad reason to enter a market anyway. In my opinion. I think it's more important to realize that everyone's results will vary depending on many many things (server economy, availability of mats, availability of time, who are your competitors, etc, etc). I would never use lie #3 as a method for determining what to sell... i would figure it out by trial and error -- and by understanding lie #1 and #2. :)
Kammler said... October 18, 2010 at 8:46 PM
Good analysis by all posters about AFK crafting and whether there is a cost associated with those efforts. IMHO, the cost exists whether it affects my game time or not.
For example, if I am going to take a shower and get ready for work, queuing up some crafting of heavy borean leather is just taking advantage of time that I otherwise would not be "playing". In this instance the item manufacturing time would be considered "free" or bonus time since there was no other game activity that I could have performed other than this crafting.
On the other hand, if in the process of posting my AH sales for the night I have to craft a bunch of borean leather to buy arctic fur, I now have to take time away from doing anything else while crafting.
That the former example didn't affect my gameplay time and the latter did seems to be irrelevant. I'm going to post the end products at the same price in the AH. Why would I consider selling one set of arctic fur at a lower price? Their value is determined not by my time investment in creating them but instead by the price people will pay to buy them. Hell, they look the same in my bag--tomorrow, I'm likely to forget how many I made while showering and how many I made during game play.
For me, this article dispels the myth that somehow one set of my arctic fur is worth less, and thus, can be sold for less.
I play the AH as a long term venture. I'm sure many readers of this blog do too. I would rather list my items at the value that preserves the market rate and sell them over time at the correct price than begin an undercutting war where I may sell more sooner but the long term value is diminished.
I really appreciate Marcko tackling this topic. And as far as the economics go, I am not qualified to debate anyone about how and why pricing works or should work. But I have enjoyed reading the detailed responses today.
Evidicus said... October 19, 2010 at 7:08 AM
TL;DR
Everybody poops. The efficient ones queue up saronite bars before doing so.
Parker said... October 19, 2010 at 11:15 AM
Well marcko, i couldint agree with you more about the " i famred it so it's free" thing people tend to do this alot on my server, and i just try to tell them, when i see it of course, that by undercutting they are really undercutting their profits and ruining the market, banking on the fact that some one will buy all of this instead of undercutting them in stride....I refer alot of people to your site, and get cussed out ALOT, mainly becuase i dominate the ah to much i guess...but you hit it on the head, some guy posted "purified" dreadstone" for 110g while i was selling them easily at 175, i messaged him in game and told him that if he wants to raise his profit margin that he should raise the price to at least something withen 3g of mine, they will still sell, and his response to that was " well i got the dreadstones from prospecting titanium that i farmed so either way its profit", thats when i pulled out my secret weapon, i said ok and just simply linked your site in the message, and thats that. it happens ALOT and i think your doing a great job pointing out these error or "beliefs" that many people have.
THanks marcko
-parker
EPixheals shatt hand FOR THE HORDE
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