Wednesday, September 26, 2012

With Both Feet: Trading Post Rage (Plus Profit Margins)

Hi, my name is Sam, and I’m enraged.

Over the past few days, I have been growing more and more frustrated with ArenaNet’s apparent dislike of financiers in their marketplace. Coming from Guild Wars 1, I was assuming that Guild Wars 2 would have more support than most other games have for investors and savvy businessmen to make some money through methods that are not grinding daily events or farming trolls, however, this assumption could not be any further from the truth. With the lack of a trading system and/or a C.O.D. system in the mail, the only method of buying or selling items is through the Trading Post, and with a 15% cut on all items you sell on the trading post, I believe that there is currently no real support for investors to make money.

The easiest solution I have found is to simply increase the margins I’m willing to work on. Instead of operating on a 17/18% profit margin, I work on a 30+% profit margin.* This drastic increase in the amount of money I would need to make to pull the trigger on a purchase makes it much easier for me to dodge circumstances where I might have to take a loss to get my money out of the assets I was investing in. Earlier this week, I ran into a situation where I bought White Dyes for about 1.40 each, but there was a huge demand for Abyss dyes that I was not able to meet since I had invested so heavily into White. In the end, I had to TP my white dyes, take a 15 silver loss on each one to buy the Abyss dyes so I could meet the demand, costing me a fair amount of profit after the final transactions. It is definitely not easy to operate on bloated margins, but it is how I have been staying afloat for now.

What I propose, and what I hope the fine readers will be willing to follow through with, is an adaptation of the current mail system as a method for buying and selling items, using map chat in Lion’s Arch as the vehicle for advertising your goods until, either, ArenaNet lowers their TP costs, introduces a COD system, introduces a Trade system, or another site begins to offer those things (similar to GuildWarsGuru’s auction system on their site (not GW2guru, the O.G. guru)). By utilizing mail trading on the policy that the person with the gold will send first (just as if you bought something off EBay or from a store, you pay first then receive the item), we can hope to create a large enough market that ArenaNet is forced to support it. Now, I do understand the inherent risk that goes along with using the mail system, so I appeal that nobody sells any item or attempts to buy any item for an amount that they would be absolutely crippled by losing. (Don’t go chasing Jack-A-Lopes) Instead, keep it small, but show ANet that the demand is there.

As an extra part of today’s article, since a lot of this was just me raging, I want to teach you all how to calculate your profit margins. In the article, I stated I use a 30% profit margin. To be clear, I do not include the 15% TP cut as part of my margin, but I take it into consideration when I choose a final number.
So, to calculate your profit margin, the general formula is profits divided by revenue. In the example I showed, I wanted to make 30% profit margin on dyes that cost 1.50 each.
Now we hit the math.
If we let profit = x, then the formula to calculate profit margin is (x) / (x+1.5) = .3
Solve for x:
x = .3*(x+1.5)
x=about .64
What this means is that my profit on the item has to be about .64 or 64 silver on each dye to hit my 30% profit margin. The next question you have to answer is if your item will sell at the point provided by your profit margin, if your profit margin actually generates a profit due to the 15% TP overhead. To calculate this, you take your revenue (the amount you sell each item for, in this case the 1.5 we originally paid + the .64 we’re adding on to hit our margin) and compare it to the trading post’s current offer. At the time I was running white dyes, they were around 2.1-2.2 each, so this margin was completely reasonable. Next, you calculate if you generate a profit using your margin. To calculate this, take the amount you’ll sell each item (2.14) multiply by .85 to find the amount after subtracting the .15 or 15% TP cut (answer: 1.81) and subtract that by your initial loss per item (1.5) to see what your actual profit is per item (.31).
We did a lot of work there, so let me try to boil it down into simple steps.

To find a gross profit given a profit margin and a cost/item:
profits  / (profits + cost (also known as gross revenue)) = profit margin, solve for profits
To find whether your profit margin is reasonable or produces items too high to sell:
gross revenue - current tp price, if your answer is positive, it won’t sell, if your answer is negative, it will.
To find whether your profit margin generates a profit:
(Gross revenue * .85) - initial cost = positive is a profit, negative is a loss

Now you know the math to calculate your profit margins, and you thought you’d never use Algebra 2 in your life.

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  1. Another thing I think is absurd is the high cut, I think 30%, that ANET removes from converting gold to gems then back to gold, or 15% each way. In addition, beyond inventory slots and character slots, gems are not that strong of an impulse buy; nothing screams take my (real-life) money. Black Lion chests in particular are supposed to be the item that drives gamblers to spend money in an attempt to get rare, exclusive loot, although Black Lion chests had their loot improved in a recent patch so we will see how this statement changes.

    I believe that these two combined factors are hurting gems potential value against gold sellers, who inflate the economy against legitimate players, spam, and hack accounts. Now back to trading post, I believe a cut is alright as it is by far the easiest to slow down the rate of monetary inflation, although 15% is probably too high, and the highest it should ever be. That there isn't a true player-to-player trading mechanism is inexcusable, people should be able to get around the fee if sacrificing convenience is alright to them. All the forced mail system is doing is increasing their load of support tickets, particularly when the trading post is down, and that makes no business sense.

    1. There's some fundamental problems with the trading post's system that need to be addressed. For example, listing fees are, traditionally, refunded if an item manages to sell. Additionally, there is no documentation anywhere within the trading post saying they will take a cut out of successful sells. This on top of the 15% cut makes me look down on the trading post.

  2. i use it for making money too but i must say why arena net did this..cuz ppl like you or me just make the inflation faster.