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T3 Production Profitability
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Mr Kidd
Center for Advanced Studies
Gallente Federation
#1 - 2011-10-05 16:39:30 UTC
Where is it?

I've analyzed the market to a limited extent. I have not looked at all racial subsystems but a fair amount I have. One question is brought to mind:

Where is the profitability?

Many of the subsystems are being sold at below market costs to build. Some subsystems are being sold for as much as 16% below market costs to build. I've discussed this with a few of my in-game friends and they keep referring to getting cheaper components by acquiring the resources to build the components myself. I guess that's fine if one doesn't mind screwing one's self on the front end to make a "profit" on the back end. Afterall, if the component is X amount on the market and in order to produce a profitable subsystem I have to discount said component by ( X - Y ) x10, wouldn't I just be better off selling the component on the market for market value?

What I'm seeing is, for the racial subsystems I've researched, that if one is lucky there might be one subsystem in four that actually is profitable. When I say profitable I'm considering a profit margin large enough to make it worth one's time. 1% - 5% is not what I consider profitable. And yet, that profit is tempered by the fact that one has a less than 25% chance of reverse engineering that one profitable subsystem. I say less than a 25% chance because we also must contend with a chance of failure, not entirely dependent upon skills.

So, where am I going wrong in my analysis of the T3 market? Or am I?

Don't ban me, bro!
Redeye Carci
Perkone
Caldari State
#2 - 2011-10-05 17:26:21 UTC
Eve's market isn't perfect. In a way you answered your own question.
Proffessor Drake
Astroforge Industries
#3 - 2011-10-05 18:04:37 UTC
to my mind you have missed something.

some races are worth building in bulk, others only sell in very small volumes.

Invention chance makes a big contribution to profitability.

buy/sell orders makes a big difference to final profit.

lastly know your market.

just because Gallente armour subsytems are hot now, doesnt mean they'll still be by the time you get yours on the market.


But im not telling you anything that would hurt my profits ;)
Mr Kidd
Center for Advanced Studies
Gallente Federation
#4 - 2011-10-05 18:18:29 UTC
Proffessor Drake wrote:

some races are worth building in bullk


I would agree. But, you have less than a 25% chance of engineering that subsystem's BPC. For argument sake we'll ignore rate of failure and random chance. So 1 in 4 revengs you'll get the subsystem that is profitable. That means you'll invest 100mil (more or less) in product to get that one subsystem. On a 10 run BPC with a 180mil profit, that's still pretty slim pickings.

Perhaps I should be analyzing intact relics....

Don't ban me, bro!
Zifrian
Federal Defense Union
Gallente Federation
#5 - 2011-10-05 18:30:34 UTC
Mr Kidd wrote:
Proffessor Drake wrote:

some races are worth building in bullk


I would agree. But, you have less than a 25% chance of engineering that subsystem's BPC. For argument sake we'll ignore rate of failure and random chance. So 1 in 4 revengs you'll get the subsystem that is profitable. That means you'll invest 100mil (more or less) in product to get that one subsystem. On a 10 run BPC with a 180mil profit, that's still pretty slim pickings.

Perhaps I should be analyzing intact relics....

You are on the right track but you need to analyze the whole market instead of just one race (unless that's all you can re). My calculator does that if you are interested.

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Mr Kidd
Center for Advanced Studies
Gallente Federation
#6 - 2011-10-05 18:47:52 UTC
Zifrian wrote:

You are on the right track but you need to analyze the whole market instead of just one race (unless that's all you can re). My calculator does that if you are interested.


I've got parts of caldari, gallente, minmatar in so far. Not complete by any means but, the picture that is being drawn isn't pretty.

Don't ban me, bro!
Mr Kidd
Center for Advanced Studies
Gallente Federation
#7 - 2011-10-05 22:12:28 UTC
Finally have a complete picture.

It's still not good. *sniff*

Don't ban me, bro!
Thur Barbek
Republic University
Minmatar Republic
#8 - 2011-10-06 01:39:26 UTC
Some people still think minerals, or in this case WH t3 stuff, are free if you mine them...

Also i would guess that most of the undervalued ones are not commonly used subsystems. People probably tried making a few of them and they have been on the market ever since.
Mr Kidd
Center for Advanced Studies
Gallente Federation
#9 - 2011-10-06 03:05:47 UTC
Thur Barbek wrote:
Some people still think minerals, or in this case WH t3 stuff, are free if you mine them...



The way I look at it is everything has a cost associated with it. If the sum of the parts is worth less than the parts alone, then what's the point?

The only thing I can figure out is there are a lot of people in Eve devaluing their efforts to produce T3 subsystems for below market costs and the few at the top are taking advantage of it. Or worse, RMT is so pervasive that chinese prisoners are being employed to produce these items and thereby providing a profit to the RMT overlords. IDK.

Looking at each individual subsystem there are some that appear to have a substantial profit margin. But, factor in a random 25% chance to reverse engineer it, the fact that the other 3 subsystems cost you more to produce than what they can be sold for & failure rates and now whatever profit was in that one subsystem is gone.

Other subsystems sets that have a margin of profitability average out to low percentages of profit making it attractive only if one can mass produce the subsystem.

It's all quite disappointing.

Don't ban me, bro!
Ioqua
ArmyofNone
#10 - 2011-10-06 09:41:57 UTC
Margins have been declining for months, yes there is on average one maybe two in each field which are profitable but its nothing like it was to the point that i rarely bother doing it now.

You can make higher margins on some of the non caldari stuff but then the volume is a lot lower
Uzii Jay
Special Reconnaissance Regiment Corp
#11 - 2011-10-06 19:08:39 UTC
I don't really know much about T3 production, but what Thur Barbek says seems to make the most sense. If you happen to invent one of the 3 not-so-great subs, then you are either stuck with a BPC which probably won't sell, and if it does the profit will be well in the negative, or you can go the length and build it with the components you already have and come a bit closer to breaking even.

People will then also get desperate to sell these trying to get some money back, and so undercut at every opportunity, and so push the market lower still.
Mavnas
The Scope
Gallente Federation
#12 - 2011-10-07 18:28:42 UTC
I can see three explanations:

1. Straight up market failure (I got stuff myself, so it's free!)
2. Like 1, except the components don't all actually sell for their listed price. So like let's say you have a product that sells for 50m that requires 60m in components, it still makes sense to produce if you make the components yourself, but the market won't actually buy your components. (Look at the bid-ask spread on the inputs. For some things in EVE it can be quite large. So it might make sense to produce based on stuff you already have, but not buy it to produce.)
3. Over-production: People built stuff when it was worth more, now they're stuck with it and would rather take a small loss and have money than keep an inventory that doesn't do anything for them.
Dietrich VonMirat
Mirat Transtellar
#13 - 2011-10-07 18:53:15 UTC
Be cautious of blaming "market failure" for anything. This is truly a player driven market, not a random roll of the dice. There are many dynamics at work, and players are indeed making money with T3 production. Most major players are hesitant to share trade secrets, for obvious reasons.

The T3 market specifically is in a bit of flux at the moment, to be sure.. Certain gas prices have hiked considerably, and those ripples haven't quite made it all the way to finished products, partly because most intelligent manufacturers speculated ahead of time and stockpiled those gases prior to the price jump.
MySmackTalking ForumAlt
Doomheim
#14 - 2011-10-07 19:36:17 UTC
Lots of reasons IMO. First, some people just need the fast ISK and will sell at a loss. But I think the big reasons are more the inaction of (most) people in EVE and the sheer incompetence by CCP in their unwillingness to shut down macros. Your inaction is primarily not petitioning this on a daily basis. We all should be doing this every day.

The downstream sequellae of a useless anti-macro policy is a broken market. Unless people make themselves heard, CCP will continue to be worthless.

Effects on the market? Sure. But the effects will only be temporary until the in-game market reaches a new equilibrium. Long term effect is a much better game, with a more fair market.
Mr Kidd
Center for Advanced Studies
Gallente Federation
#15 - 2011-10-09 13:10:30 UTC
I just analyzed the hulls, none of them are profitable.

Even more depressing.

And still, some people I talk to insist that there is profit because you get the components yourself. Why can't I make them understand the fallacy of that?

Don't ban me, bro!
Germisal
Backroom Fluffers
#16 - 2011-10-10 07:27:24 UTC
Mr Kidd wrote:
I just analyzed the hulls, none of them are profitable.

Even more depressing.


Depressing is the thing that your calculator's been smoking...

Care to share your analysis so someone could point your mistake?
Mr Kidd
Center for Advanced Studies
Gallente Federation
#17 - 2011-10-10 14:14:17 UTC
Germisal wrote:
Mr Kidd wrote:
I just analyzed the hulls, none of them are profitable.

Even more depressing.


Depressing is the thing that your calculator's been smoking...

Care to share your analysis so someone could point your mistake?


That's ok. I think I'll keep my data private, not that you can't put it together yourself. I've no doubt that my analysis is imperfect. Most likely it's too optimistic since it's based on sell orders and doesn't consider buy orders. Basically I took a look at the available sell orders in Jita. From those sell orders I looked at the lowest priced orders, weeded out the fire sales, either went with the mode or any order with a substantial quantity of product being offered as those tend to set a competitive price point.

From there it was only a matter of putting together the costs for items required for reverse engineering and materials required by the BPC's, do some voodoo addition/subtraction and there is the extent of my analysis.

So please tell us how you analyze the market?

Don't ban me, bro!
Zifrian
Federal Defense Union
Gallente Federation
#18 - 2011-10-10 17:10:30 UTC
Mr Kidd wrote:
I just analyzed the hulls, none of them are profitable.

Even more depressing.

And still, some people I talk to insist that there is profit because you get the components yourself. Why can't I make them understand the fallacy of that?


I don't see that either. These are just imported market prices and taking the best profit from build or buying the components.

http://img59.imageshack.us/img59/5391/t3hulls.jpg

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Germisal
Backroom Fluffers
#19 - 2011-10-10 17:55:09 UTC
Mr Kidd wrote:


That's ok. I think I'll keep my data private, not that you can't put it together yourself.

As a T3 producer that's been on market for 1½ years, I have pretty good data on the profits. I doesn't mean or prove anything or to anyone else, nor that it should, but just saying...
Mr Kidd wrote:

I've no doubt that my analysis is imperfect. Most likely it's too optimistic since it's based on sell orders and doesn't consider buy orders.

Profit calculations based on sell orders is your problem/mistake.

We could on the other hand argue, if the "profit" between buy and sell order price (for components) should be calculated as a profit for the end-item... But anyways, I don't think that anyone actually buys these parts from sell orders for production needs.

Since the volume traded is quite low, any manipulation towards any of the bottleneck items would screw your profit calculations.
(See intact hull sections, last 30pcs I bought for 60-80M / piece, sell orders for those go around 150-200M. Also Melted Nanoribbons have been under heavy manipulation last two weeks, normally one would get just as much as needed for between 5,5M-6M/piece, sell orders for nanoribbons were around 7M for a while in Jita. And since about 81% of the hull price is based of nanoribbons, that effects the "profit" a lot).
iNFoRMaLiTY11
Viziam
Amarr Empire
#20 - 2011-10-12 09:15:27 UTC  |  Edited by: iNFoRMaLiTY11
Im not very familiar with t3 production so ill ninja your thread to get some knowledge myself.

I have a question about opportunity cost. The "minerals are free" i understand but for example in higher tier PI goods for the sole purpose of getting capacity smaller i am making them. I.E. the raw mats would net me more money but higher tier takes less space and thus is easier to haul (on my example hauling out of wh). So in effect the opportunity cost matter on my case is taking deliberate loss in ISK compared to selling raw materials for less headache in favor of less trips with hauler.

This rises me the questions and thought:

Is there any other reason people would be willing to take losses of ISK in T3 production compared to selling raw materials?.

Cargo capacity?
- I dont know the T3 production line so id be gladly be enlightened. Are the raw mats bigger or smaller than end result?
Pos upkeep?
- The fact that labs and production facilities can be used for random storage comes to mind and that might be harder to value. Yet could getting several uses out of same arrays be the reasoning?
Hauling issues?
- WH space/null/low sec poses come to mind. Where are you making it? where do you get materials? Where are you selling it?
Steady buyers?
- I.E. if i have a guy who is willing to buy x amount off me regularly for reduced price i sacrifice little bit of profit for comfort of stability. If my steady buyer gets em off for resale is hauling his problem?
Fun?
- Perhaps someone just likes to build everything from scratch and it adds a level of depth into game. Besides giving something to do when your corpies are not logged on (industry tab clicksies). Also how much ISK is because i plonking CAN worth?
Overlap of skills?
- How much T3 production skills overlap into other production possibilities and can T3 producion can be used for sideactivity from other projects until waiting training que?
And your own point on single subsystem profitability.
- If one subsystem is profitable compared to hull/other subs, how does that affect the volume of your sells? Will people buy complete T3 more often (and at bigger price than hull + subs separatly, especially rigged) than slapping their own T3 together.

Also, english is far far from being my first language so excuse grammar, i have no schooling on that.

Edit: I also gave a look on your isk per h screenshot. Are all bpc-s ME 0 from reverse engineering? How does using different decryptors affect the calculations? Can you even use decryptors? Any chance of somehow modifying ME levels?
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