Costs and benefits of items in invention

The recent poor run of inventions made me think about how to improve this aspect so that I get a more reliable "flow" of tech II BPCs to build from. I haven't so far been using any "base items" in my invention so I thought I would work out the effect they would have. Base items are simply the meta 1/2/3/4 version of the item you are trying to invent, and they get consumed in the invention job.

The table below shows the chances of success with and without items. I've also calculated the averge cost of one success based on a theoretical 1 million isk cost of the datacores required. This means I can also calculate the actual benefit (in terms of isk) of the item.

	Chance	Average cost per success	Average benefit of item
No item	50.4%	1,984,127
Meta 1	52.5%	1,904,762	79,365
Meta 2	56.0%	1,785,714	198,413
Meta 3	63.0%	1,587,302	396,825
Meta 4	84.0%	1,190,476	793,651

The average cost of datacores for me is not exactly 1 million but varies per job and varies over time depending what the datacores cost, so here are the equations to use to calculate your own table:

• The chance of success I have taken from this very useful website and the chances shown in the table above are for max skills (5/5/5 in the appropriate 2 science skills and the racial encryption skill)
• Average cost of success = (1/chance) x cost of datacores
• Average benefit of item is just a simple subtraction of the meta item you want to calculate less the cost per success with no item

So, using this information, I can set up some "buy" orders in mission hubs and hopefully snap up some items to use. I'm not optimistic about getting many meta 4 items at a good price - they tend to go for millions compared to a benefit of under a million isk. But the meta 1/2/3 for many items I should be able to get hold of.

As long as I pay less than the "average benefit of item" (using the actual value of my own datacores, not the illustrative 1m isk cost of datacores used in the table above, obviously) then this not only helps my profit margins but also should help me get a more reliable flow of inventions. Win/win!

Imperfect storm

It has been a somewhat frustrating week for my corporation. A bad run on inventions combined with a shortfall of a few materials, compounded by a busy personal life and so reduced time in Eve, conspired to reduce my manufacturing to a trickle. The corp wallet ticked over a billion for the first time though, but then I had to spend well over 100m on materials. There are clearly lessons to be learned though and once I've had the opportunity to do a bit more analysis, I'll do a proper post on managing operational efficiency. I've been building a little spreadsheeet to help with forward planning and the numbers that come out of that should be illuminating.

There's also a bit of a backlog of stuff to sell, although that's not too bad, prices seem stable and if anything on a marginal upwards trend. There's a bit of speculation on the forums that this is down to the increasing prices of the tech II manufacturing materials which are built from Planetary Interaction, although personally I think this has a pretty slim impact. My "forward planning" spreadsheet will also show my "materials basket" and I should be able to analyse the real impact of the rise in price PI products, and compare the impact to the downwards trend in mineral prices. At the moment I'm skeptical that there will be much in the way of overall price changes to tech II from PI, but I'll wait and see what the numbers show.

Selling - location, location, location

As I said in a previous post, I've been selling primarily in a trade hub and a mission hub. The graph below shows the relative number of transactions in each location.

It's (almost) the same "suite" of items that I'm selling at both. I have found though that some items just don't shift at all at the mission hub, whereas other items are actually almost as popular there as at the trade hub. It takes a bit of time to learn exactly what sells where, but hopefully this information might be useful to other people planning their sales strategy. The simplest use of this would be to decide how much of each item to list in each location as a starting point until you can see which items work best at which locations.

Mission hubs verus trade hubs:

• Items in the mission hub generally take a bit longer to move
• Prices are typically a 10-20% premium over the trade hub
• Orders in a mission hub generally require a lot less "babysitting" - there's less people playing the 0.01isk undercutting "game" with you
• Sometimes you'll see people undercutting the trade hub at a mission hub. This is an opportunity: you can buy them out and relist at a higher price, or wait it out and list your items at a premium once theirs have gone
• Trade hubs are generally where you find the big lumps of orders (hundreds or thousands of items listed in a single order) but in mission hubs you're competing against smaller sized orders which can (occassionally) move quickly, leaving the hub wide open for you to exploit. In other words, timing becomes important, unlike trade hubs where generally all items are available all the time. There can even be times where you need to adjust your prices up in a mission hub if you become the only supplier
• Trade hubs generally seem to have one station which is used exclusively
• In mission hubs, items can sell at more than 1 station - check out what agents are in which stations. Stations with level 4 agents get the most action, but if you're selling frigates or cruisers (or modules for those ships) stations with lower level agents may be fruitful

That's some early thoughts after a month of experimenting, hope it's useful to somebody!

May-June Corporation reporting

The first 2 months of my corp have been pretty successful, and I've learnt a lot doing this. I have done tech II production before and I think I made billions over the last couple years, but I never kept track. Certainly I have plenty isk and I can't think where else it came from!

The corp allows me to keep track since its wallet is separate from mine. I've not done this on this scale before - my own POS and a recently "matured" industry alt adding significantly to the size of the operation, so it just seemed appropriate to start a corp.

Below are my key thoughts on my first months and under that are the financial results.

1. There are 2 "employees", currently my main and an industry alt.
2. Primary activity is tech II manufacture.
3. Tax rate is zero, the purpose is to keep track of manufacturing profit/loss only.
4. At the moment between them I can run 19 research jobs and 14 manufacturing jobs simultaneously. What is holding the corp back more than anything right now is the limit on manufacturing jobs, even using POS arrays which reduce manufacturing time. I can invent more than I have the capacity to manufacture. So my alt is training up some skills and I'm going to buy an implant to reduce manufacturing time. I am also considering increasing the number of manufacturing arrays at the POS as currently 40-50% of manufacturing jobs are completed using station facilities which are slower, although see point 6.
5. I have no issues selling what I can manufacture, the markets I'm in can easily support greater volume without affecting my sale price. I thought it would be much harder work selling higher volumes with a lot more "babysitting" of orders, actually although there is some extra effort involved, it's less than I had feared. Logistics were also all set in place while the corp was being set up and while that was a hassle at the time, my risk of "burn out" seems low right now. I feel confident that if I want a little break, I can take a few days off easily while just keeping manufacturing ticking over - in fact I had to take some days off anyway for real-life reasons and it had little impact, it was easy to clear inventory once I got back.
6. The POS is a large expense in terms of fuel and POS structures may decline in price following the introduction of PI, which would have a negative impact on the value of corp assets. In contrast the cost of manufacturing and research fees at local stations is extremely low. At the moment my decision is to keep the POS for 2 key reasons: (1) it provides copy slots which otherwise have a 2-4 week wait time in Empire and (2) the manufacturing arrays give a bonus to manufacturing speed.
7. I am operating in markets I know, selling mainly in one trade hub (80% of sales volume) and one mission hub (17% of sales volume). The corp is attempting to find new sales locations, and some have been scouted for suitability. Entering any new market is a risk but the key objective is to increase profitability (not volume - as previously indicated there is plenty volume at the trade hub).
8. Profit per item ranges from 13% to 95%. 17 different items were manufactured this month - diversity is critical in my opinion. Some additional new BPOs were purchased and further new items are being investgated. Likewise, new items can be a risk, but not exploring new items is also a risk.
9. The worst aspect of this month's results (below) is that only 80m was spent on trading. Most of the items have not yet been sold and some have quadrupled in value - this is good, but I should have trusted my instincts and "gambled" more. Hindsight is a wonderful thing, however, and over 10% of the corp's wallet spent on a risk seemed quite a lot at the time.
10. Lastly, PI production chains have been set up on both characters to supply POS fuel and some tech II components. The corp will purchase these at market prices. These chains lower time spent on logistics, as all POS fuels and required components can be created in the "home" system. This is actually through luck rather than foresight, but every successful business needs a bit of luck!

And now, some hard financial figures:

Profit/loss: +496.3m isk
Revenue: 989.4m isk
Spend: 493.1m isk
Assets: 709.2m 
Debt: 1417.0m

Note: There are only 20 days of actual sales, the corp was set up in May but setting up took some time, along with an invention/manufacturing lead time, so sales did not commence until June 10. The progress of the corporation wallet can be seen in this earlier post.

I'm not going to give a breakdown of revenues right now as I don't wish to disclose what I am manufacturing, although in future posts I may give some detail. Mostly (not entirely) it's tech II. My spend is detailed below, with some notes. Note that materials spend includes datacores, minerals and construction components - nothing is "free" to the corp, it pays my characters the market value for datacores and so on. This makes the corp's results a true reflection of the profitability of tech II manufacture.

The "debt" is essentially my initial investment from my main character. I have counted the cash plus the value of all items at the time they were donated (mainly the POS and blueprints). Lastly, the "assets" line is rather simplified and is just the sum of CAPEX in the first 2 months, basically just the POS and blueprints (note: "assets" and "debt" are not included in the profit/loss equation). Assets should really include materials in the corp hangar, unsold inventory etc but I'm going to ignore that mainly as it's a pain to calculate.

Total purchases: 468.9m isk
Breakdown:

• Materials: 320.9m (mostly tech II construction components, also some minerals)
• Trading: 80.9m (speculation mostly on PI products before they were removed from the market)
• POS Fuel: 61.8m
• CAPEX: 5.2m (new BPOs, POS structures etc)

Other spend: 24.2m
Breakdown:

• Broker's Fees: 1.6m
• Transaction Tax: 4.4m
• Manufacturing fees: 0.3m (some manufacturing jobs done in station rather than POS)
• Offices: 17.8m
• Research fees: 0.1m (some research jobs done in station rather than POS)

Total debt: 1417.0m

• 704m CAPEX (BPOs, POS structures etc)
• 25m POS Fuel
• 488m Materials
• 200m Cash

Planetary Interaction markets emerge

I'm going to examine two categories for PI products: POS fuels and components for tech 2 production.

POS fuels: Coolant, Oxygen (P1), Mechanical Parts, Robotics (P3)
Tech 2 production materials: Construction blocks, Consumer Electronics, Guidance Systems (P3), Mechanical Parts, Miniature Electronics, Robotics (P3), Rocket Fuel, Superconductors, and Transmitters.

Both Robotics and Mechanical Parts fall into both categories. Unless otherwise noted, all of the products are P2. There's a slideshow below with comments, and you can click on the graphs to see a larger image.







Broadly, this follows the pattern for new markets from in my previous post (required reading if you're going to make the most of this post, sorry!). This is most evident if you look at the Superconductors, where the player-driven market actually started a bit early in this region, since there were no NPC sell orders. The hoarding and buying/selling between players started when Tyrannis was announced, not when the patch actually happened.

So what can we take from this as a guide to prices?

• We can probably exect to see the "normal" new market price patterns
• The trouble is, with many of the materials it's hard to know right now if they are going to continue to rise (i.e. we have not reached the high point of the initial peak yet) or start to decline
• Volumes traded are VERY much lower than previously
• Interestingly, you can see from some (it's most noticable on Guidance Systems) that volume traded is almost zero and yet the price pattern remains the same! This I find very interesting - the price pattern is down to buyer/seller psychology and apparently not dependent on any significant trading occuring. Interesting for me anyway, doesn't have that much real impact on the actual market.
•  I predict volumes will only return slowly and may never reach the levels they were at before. This is partly because of hoarding, and partly because POS owners and tech 2 producers will have set up their own supply chains. I know I have.
• I think what we'll see is a flattened out version of my "new market" pattern, with a fairly bumpy ride along the way. Like so:

 

Where it's "bumpy" (especially in the coming few months where I predict prices will stay at the higher end but fluctuate pretty wildly) there is money to be both made and lost through speculation, but I would describe this as a high risk strategy. Your best time for speculation was before the market started - I did that, I only regret that I only sunk a few tens of millions into buying up NPC goods, and not hundreds of millions.

Since blog posting is limited for space and I have only finite time available to me, I haven't done all the analysis I could (note: I'm a market analyst in real life). There is one particular thing you might think is missing, but it actually would not form part of my analysis anyway. It's production costs. Largely, I do not care about production costs in my analysis. In a free market, it does not matter what you'd like to sell your product for, the market will decide what it's worth. Also, profits based on production costs at a time when every component is rapidly changing price on a daily basis are really quite arbitrary figures.

That is why I have chosen to specifically look at these products - because they are an end product in themselves with value, not merely a production material for a larger process. Those other PI products which are (in effect) just materials are likely to have their price dictated to by the ultimate price of the new player-built POS structures, and it's far too early to see how that might shake out.

However, if you do want to look at (what I would call arbitrary) costings, then someone did a good job on the forums. Eve forums post. It's an interesting analysis but since I believe the market wil dictate prices, I can't help but agree with one of the comments by another poster: "Friendly advice from someone involved in RL trading: make your tools follow the market, not the market follow the tools." Couldn't have said it better myself.

New Market, Old Pattern

One of the things I often look at in my job as a market analyst is the emergence of new markets. With Eve's new expansions every 6 months or so, this means some new markets on a regular basis. The last big expansion brought new items from wormholes, which seeded the market for components required in tech 3 item production, and the most recent expansion brought with it planetary interaction (PI) which also opened up new markets for players.

Firstly, in real life markets, there is a typical pattern to the cost of goods over time, shown in the graph below.

 New product categories typically sell for a high price initially. This is driven by a number of factors such as:

• scarcity
• new product categories are often seen as "premium"
• cost of manufacture tends to be higher until the market establishes itself and (if the product category is successful) economies of scale start to come into play
• Early markets are closer to a monopoly, so competition effects do not come into play immediately

As the market grows in volume, more companies start to make the product and competition ultimately also drives the price down.

Eve is slightly different since there is almost no scope for economies of scale to come into play, but manufacturing costs tend to be driven down in a similar way - components for production of new items are often introduced at the same time as the new products (for example, sleeper salvage and T3 items) and so manufacturing costs come down as the components required become less scarce and follow a similar pattern to the one shown in the graph.

The Market for T3

So how does this compare to the market for T3? Are we seeing the same patterns? Yes we are. The graph below shows how that market has developed during its first year.

Unfortunately we've missed the very start of the market by a couple of weeks, but I think you can see that the pattern is what would be predicted. You can pick any of the popular subsystems and you'll see the same pattern.

With unpopular subsystems, since demand is low the market for those items, trends don't work quite the same way but this post is a giant already so I'll deal with that another time.

Planetary Interaction

This is a brand new market, less than a month. It's also somewhat different because most of the items were previously available at a set price (set by the designers of the game). Looking at this market I am seeing a number of unusual dynamics going on (although broadly the pattern is starting off in with somewhat similar shape - prices are still rising to an "initial high" for most PI items). I was intending to write about PI in this post but this is quite long already so I will deal with it in the next day or two.

June Corporation Update

As I mentioned in my first post, I have started to run a small industrial corporation. There is only my main and an industrial alt in it. June was the first full month of the corp's existence, and the first month where anything was sold. Below is a graph of my progress, with a couple of notes.

So far so good! Around half a billion isk in the first month.

This is just the first snippet of information - but it shows what can be achieved with 2 characters, enough investment to set up a POS, and a bit of forward planning. In future posts I'll reveal some more detailed financial information which should help others with their own industrial corporations. I'll also be posting this and more detailed financial info on a monthly basis.

Time is money?

One underlying assumption I have to make in order to do various calculations is to put a value on time. So I'm going to try and answer this basic question:

"How much is time worth in Eve?"

There are various ways of answering this. I'm going to examine the value in isk (the in-game currency) and dollars, which has the interesting side effect of allowing me to calculate an isk/dollar exchange rate.

One way is to look at subscription fees, which can be found here. This gives us an upper limit of $14.95 per month, and an upper limit of $131.40 per year. Most industrial processes in Eve (manufacturing, research and so on) are measured in hours, so let's convert to that. Note that for the upper limit I'm using the worst case scenario (28 day calendar month) and for the lower limit the best case scenario (366 day leap year).

• Upper limit: 2.22 cents per hour
• Lower limit: 1.50 cents per hour

Although this is useful, it's actually only useful for some calculations. The Eve server has downtime scheduled for one hour per day, so it is not possible to play 24/7. However, skill training and industrial processes keep going during downtime, so for the purposes of most of the calculations I intend to be doing, those are the right numbers.

I'd also like to be able to quantify time in terms of isk (the in-game currency). That's a bit more difficult, but since you can also buy game time for isk, we can do that calculation. However, like almost anything in Eve, game time is bought and sold in a free market, so the price fluctuates over time. Also, if you are buying game time using isk to buy PLEX (Pilot's License Extension) you can only buy 1 month at a time. It is possible to buy greater amounts of time using timecodes which can also be bought and sold for isk on the forums, but it's impossible to get good data from the forums whereas it's easier to get an accurate measure from the in-game market, so I'm going to base my calculations on the cost of PLEX.

That's what the market for PLEX looks like. Also, the lowest sell orders are 303m isk and the highest buy order 293m isk. So currently it's around 298m isk for 30 days (PLEX time is counted by days, rather than calendar months which is how subscriptions are priced). This gives us (at today's prices in the Sinq region):

413,889 isk per hour

We can see from the market graph that this is on a downwards trend, although there has been a slight uptick in the last few days.

Bureau de change

This can also effectively give us a dollar/isk conversion rate, in fact two different rates. Taking an average of the per hour rate calculated from subscriptions of 1.86 cents/hour and comparing that to 413,889 isk/hour we get:

$1 = 22.25m isk 

CCP also sells PLEX directly for $34.99, which gives this exhange rate:

$1 = 8.52m isk 

So which exchange rate should be used? CCP buys dollars in exchange for what ostensibly becomes isk at the latter exchange rate. For players buying PLEX, this is also the correct rate. For players buying subscriptions, they are on averge getting the better deal at a rate giving them game time worth 22m isk for the price of a dollar. Really I should do the calculation for each type of subsciption but this post is long enough already. Basic point is - subscriptions are better value than PLEX so if you are not struggling for real-life cash, then use real-life cash to pay your sub. You can play for "free" with PLEX but by the (somewhat artificial) measures economists use, it's worse value.

I am going to use the $/PLEX exchange rate for any real-money translations that I want to do, mainly because if you are a player considering some market activities such as trading and you want some in-game capital to get started, this is the rate at which you would purchase isk. It represents the dollar cost of buying your way into the in-game trade/industry/manufacturing activities. It's also a much simpler measure.

Incidentally, my own main character's current wallet has 2 billion isk (although there is more tied up in assets and investments) which gives my in-game wallet a dollar value of around $235. That's not a lot of wages for 5 years!

Note: Buying isk from isk-sellers is against the ELUA (End User License Agreement) and will get your Eve account banned. Also, I don't understand why anyone would buy isk from dodgy websites when you can buy it by purchasing a PLEX as described above. You risk a ban and having your Eve account hacked. Don't do it, kids. Srysly.

First!

In Eveonomics, I will be applying some economic principles to the in-game market of Eve Online.

• I have been playing Eve on and off for 5 years now, and have a small industrial concern which has made my character a multi-billionaire.
• In real life, I am a market analyst, but not a multi-billionaire. I'd rather be the multi-billionaire 5-year-old in real life, but them's the breaks...