New Crafting Paradigm
I have been thinking a lot on various comments made both here and over at Cold’s blog (specifically his Opportunity Cost Part 2 posting), all related to the variance between the market price of mats and of the market price of finished products. It seems like a no-brainer to say the market price of finished products moves independently of the price of mats – even beginning auctioneers can pick up on the fact that, say, cut gems generally go for more than uncut gems, or that profit can be made on making flasks at certain herb prices, and so on. It makes intuitive sense that by adding work to an object, i.e. turning apples into applesause or herbs into flasks, you increase the value of the object.
But… how do we thus explain when the finished product ends up being valued below the cost of materials? We already answered that question: the market price of finished products moves independently of the price of mats. The only real connection we could have is that when, say, flasks go “underwater” (e.g. become worth less than the mats needed to craft them), it becomes less likely that more flasks would be created. I say “less likely” because there is no real way of knowing what price points other Alchemists bought their herbs at, or if they are the type of people who overestimate the 15% Elixir Master bonus, or perhaps the people that sell whatever they have at whatever the current going rate is regardless of “paper profit.”
What this is leading me to do is codify a new crafting paradigm for myself, putting numbers and words to a concept I was subconsciously doing anyway.
Twilight Jasmine = 4.32 – 10.5 | (x8) 34.56 – 84 (avg 59.28)
Azshara’s Veil = 4.4 – 10.65 | (x8) 35.2 – 85.2 (avg 60.2)
Volatile Life = 8.07 – 12.5 | (x8) 64.56 – 100 (avg 82.28)
Draconic Mind = 132.54 – 241.55 (avg 187.04)
Highest End Mats = 269.2
Lowest End Mats = 134.32
Avg Mats = 201.76
60 flasks = 12,905.76 flasks (60 + 15%) – 12,105.6 mats (60) = 800.16 = 11.6 per flask
To put it into words, on average, you only ever make ~11.6g in profit making a Flask of Draconic Mind as an Elixir Master alchemist based on the last two weeks of TUJ numbers. Profit is increased when you buy mats below average and sell flasks above average, obviously. However, in comparison, the profit you would make buying 60 flasks’ worth of Azhara’s Veil at it’s lowest price of 4.4g/each (2112g) and selling at it’s average price of 7.5g/each (3600g) is immense: 1488g profit before the AH cut. Buying Azshara’s Veil at 88g/stack and selling it at 150g/stack is on average more profitable than making flasks, without even considering the price of the other herbs.
Almost a “duh” moment, right? Flipping a 88g item into 150g is a 62g return that no one would miss, let alone the opportunity to do that with a bunch of stacks of herbs. As I mentioned though, this is a new crafting paradigm for me, or way of looking at things. Alchemy is one of my go-to professions, and thus I have an unconscious bias towards making things even when it appears to make no economic sense. Why even bother having professions if you are not going to use them, right?
In other words, in this paradigm it is not enough that a profit could be had by purchasing mats at X price and crafting something to sell at Y. The price at which I can sell Y has to be higher than the highest price of X, or I was probably better off just warehousing the mats until their market value swung higher.
I say I have been doing is subconsciously, and the reason is basically my Foundation article on Finding the Margin. By keeping my personal margin relatively high, I was inadvertently keeping myself from jumping into “profitable” albeit volatile markets which were prone to going underwater. With a personal margin of 30g, I would avoid making flasks at 11.6g average profit and thus expose myself to less risk. When mats are really cheap and flasks are really expensive, that margin increases up to 100g per flask – an obvious market signal that I should move in and set up shop… for a while at least.
One thing I wish I could do is be able to present this data in a graph or picture form, but I have no idea how to do so.