A lot of articles I read talk about how much gold/hour you can earn by following a certain technique. If only the process were so simple! The idea is this:
Sale Price - Cost of Creation = Profit / Time to Make = Gold/hour.
It seems simple, but should this be the primary method for determining our gold-making strategies?
The Real Cost of Items
Items don’t just cost gold to procure. There are lots of factors that go into an item’s cost, but not all are as easily defined by their purchase price. While you should definitely be concerned about the purchase price, there are other factors involved :
- How much bag space does this take up? Every slot you fill with this item is one slot you can’t use for something else. This affects your total gold-making potential as you have limited space to store cheap items for later use. We sometimes label this Opportunity Cost.
- Where’s the best use for this item? Volatile Earth could be used for making leg armor, belt buckles, dream cloth, or other items. Where is your best bang for the buck? We sometimes call this Return on Investment or ROI.
- Should this item even be purchased? How much Gold can you make with this item? If you aren’t sure, you’ll have to spend time researching it. You might even have to take a loss on some items before it starts turning a profit.
- How much processing time is involved? It might be cheaper to buy ore and prospect it for your gem business. But the processing takes time. Is it a better return than buying the raw gems and cutting them for profit? I prospect very little ore myself, instead relying on the purchase of cheap gems off the Auction House. Could I make more by prospecting? Probably, but all my play time would go into the prospecting/gem cutting and I wouldn't be able to profit off Enchanting or Leatherworking as much. I might also only be able to prospect and sell 50 gems, but I can purchase and sell 100 in the same amount of time.
The trick to maximizing your profit is not in running a simple gold/hour formula to find the most profitable item, but the sweet spot between supply (raw mats and processed goods), demand (sales) and time. Hypothetical example:
- I can procure 300 Volatile Earth/Day for my desired price or lower.
- I can sell 100 Volatile Earth via Drakehide Leg Armor (5 sales/day).
- I can sell 40 Volatile Earth via Ebonsteel Belt Buckle (10 sales/day).
- I can sell 50 Volatile Earth via Enchant Bracer – Major Strength (2 sales/day).
Now, in the above scenario, I have a balance of 110 Volatile Earth that I couldn’t process each day. How do we optimize this? I have a number of options to improve my overall return on investment on Volatile Earth:
- Buy less for a lower price.
- Process more finished goods and lower the price to try increasing sales.
- Sell excess Volatile Earths for a small profit.
- Expand into more items to produce.
As you look to optimize your total gold/hour, consider the following:
- Think in terms of weekly and monthly throughput. My scenario was a single day, which has lots of variation in it. Your weekly or monthly sales will be a more accurate reflection of total output for items.
- Consider where your time is being spent. Don’t be afraid to drop out of some industries to focus on others. You might be making profit on PvP gear, but maybe the time could be spent better elsewhere. It might be more profitable to mill herbs and produce glyphs than to process ore for gems. Shift processing time to glyphs and buy raw gems to cut for Jewelcrafting instead. Try to find the most efficient use of your time. If you produce more than you can reasonably sell, you're leaving money on the table by not dropping out of that really high gold/hour item that doesn't sell and instead focusing on a lower gold/hour item that does.
- Look for the sweet spot on raw material inventory. Ideally, you should never run out of raw mats or their finished products, but you also shouldn’t sit on a ton of mats either unless there’s a big pay-off at the end.
4 comments: on "The Gold Per Hour Myth"
J.E. Douglas said... September 30, 2011 at 10:00 AM
Good post.
I would agree with what your getting across except for one thing.
Raw materials in the game tend to not depreciate unless there is a large change in the mechanics of a profession (change of ore is a big one).
Elementium ore has dropped in price over the weeks due to larger amounts of bots, and people dumping product. With at at least 6 months of active product life from the game. That's 6 months of usefulness for the elementium ore (conversion to elemental bars, can also be Prospected and items sold for profit). So if I can get a good deal that has a guaranteed profit margin, with the chance of a higher profit. Then I end up ahead to purchase it at that set level. Even if the ore goes lower, I can fall back on the guaranteed profit, and gain more from the new purchase.
As long as at the end of the expansion lifespan, I end up with close to zero in product to sell to make room for the next expansions main ore.
The same thing with Savage Leather to me. The amount I store will be used, and I will make a profit if I pay attention to when I purchase and make sure that it is purchased under the guaranteed amount I have set in my mind.
Still, I enjoy these connections to real life economy topics.
Silverthorn said... September 30, 2011 at 10:15 AM
Nice article! I just wanted to add one thing more to think about-- the "life cycle" for your raw materials.
For example, each of the Cataclysm ores-- Obsidium Ore, Elementium Ore, and Pyrite Ore prospect into 6 different rare gems, 6 different uncommon gems and Pyrite also gives Volatile Earth.
It turns out that the rare gem market is much more profitable than the uncommon gem market. In fact, I don't see any market for cut uncommon gems on my server, nor really much interest in the uncut gems themselves. So, I focus on the rare gems, but I can't forget about the uncommons or my bags, bank, guild vaults, and mail box will eventually fill up with them!
So, what to do, what to do with the uncommons? Here are some possibilities.
1) Cut 'n vendor. This is the less profitable option, but it's pretty much the only reasonable option for Zephrytes.
2) Craft into jewelry and sell it on the AH. This is a low volume, high risk option, since the items may not sell and the deposit costs discourages speculation.
3) Craft into jewelry and vendor it. It's slightly profitable, especially if you have no access to an Enchanter. Zephyrites have no corresponding jewelry and therefore are vendored simply as cut gems.
4) Transmute the uncommons with the respective herbs x3 into the rare gems. Presently only really profitable for Carnelians to Inferno Rubies and sometimes the Nightstones to Demonseyes as well, depending on the cost of Twilight Jasmine.
5) Craft into jewelry and DE it. This is what a lot of folks are doing and so selling the magic components has a lot of competition, that drives the prices down. This even extends to the scrolls that can be crafted with these mats. Some of them are selling incredibly low, like a Scroll of Mighty Stats for 30g at times, on my server.
I pretty much turn all Hessonite, Jasper, and Alicite into jewelry, except for a small stock for the JC dailies. I have been selling the Volate Earths and DE'ing the crafted jewelry.
I'm turning as much Hypnotic Dust as I can into Embersilk Bags and scrolls, but there's still a large amount of dust, essences, and shards piling up in my mailboxes. I'm still looking for more opportunities to spend my reserve down...
J.E. Douglas said... September 30, 2011 at 1:19 PM
@Silverthorn
I would add two things to your list of options.
I save a certain amount of nightstones, Zephyrites, jaspers to overprice on the AH when it's the daily. It tends to empty out my Zephyrite collection. I'm hesitant to vendor them right now because that's a guaranteed amount of money. So I can liquidate them at that price at any point.
Anonymous said... April 8, 2012 at 6:22 AM
One important aspect to me is also time. Not how much i can necessarily make within a day, but how much time in the day i have to spend. You see i tend to do a small amount of alliance and horde AHing(same server and each one every other day), but i have come up with a wonderful solution. You see my friend is a jcer/miner, but no other toons with good profs. Anyways for a small fee, i pay them to prospect, make the rings/necklaces, and/or cut gems. They then send the equips to my enchanter and my gems to my ah mule. Its really my roommate, so i can see what they do if need be. While they are doing that, i am either doing the same thing on the other faction, or just chilling for the day.
Theoretically speaking, you dont need to be working on both factions to do this. You just could be working on more important things on the game or even working irl. You could be playing diablo 3 when its out, guild wars 2, etc.
The cost is a little bit of gold, but profit is there, and time has been saved...or used elsewhere.
Basically the point is i also see a time clock instead of just the dollar signs. I can purchase another persons time in that sense then.
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