Monday, November 17, 2008

Money Making (Part 2 of 2): Identifying Entry Points, Diversification, and Situational Markets

Disclaimer: Observations made in this article are based on personal experience. You may have had different experiences. That's great, but what you'll find here is what I've seen and my analysis thereof. Please take it all with a grain of salt and a shot of tequila.

Note: We previously mentioned as one of the core rules, "Don't rely on an auction mod" and there were some comments regarding this rule. The rule is NOT intended to say "Don't use mods" because that couldn't be further from the truth. Mods help us list auctions and quickly find macro trends, but the one thing (unless someone shows me otherwise) mods can't do is provide the reasoning why one should pursue a certain market over another. So, use your mods, but don't rely on them to do the thinking. That's what you're for.

Part 1 of this 2 part series dealt with the core rules, guidelines to follow when attempting to make money through the Auction House (AH). We all know that one could feasibly do 25 daily quests/day and then farm ore/herbs until their eyes bled for gold, but realistically, if you did take that course of action, you would, aside from a vague feeling that you're about relocate to a warehouse in Shanghai, probably quit the game in a few days out of mind numbing boredom.

If you do enjoy labor of the menial type, by all means be my guest, as your hard work fuels my profits. Also, if you want to farm me some herbs/ore, and COD them to me, feel free! I'm a respectful pimp. But, for those who are moderately proficient at math (gasp!), there is a far less tedious means of generating income. That method?

Making money off of the lazy.

If there were no lazy people out there and everyone who wanted that Frozen Shadoweave Robe dutifully leveled their Tailoring up to 375 and only used Shadowcloth from their transmutes with Primals they gathered, there would be no market to speak of. However, people, through lack willingness to take initiative to act on their own behalf are instead willing to pay good money for someone else to go out of their way to do the thinking and the gathering and the crafting to create the final good.

This somewhat mirrors Real Life, but in that capacity, the concept of ability is introduced. In WoW, everyone should have (unless they're just that clueless) the ability to obtain nearly everything that's sold on the Auction House, lucky BoE drops aside.

For someone making money, the person we rely upon for our income is the person who isn't willing to buy an uncut Living Ruby and find a Jewelcrafter for that Bold cut. To that person, we sell a precut gem at a reasonable markup, covering our investment in the uncut gem and rewarding us with a profit. How many people like that are there in the game? A $#!*ton.

The real question for those trying to use the AH to generate a solid cash flow is "Where do I enter the market?"

Entering the Market

For a typical AH'er there are generally three points of entry:
  1. Gathered goods that are in their final usable state
  2. Gathered goods that are components to be used to create something else
  3. Crafted goods, both in component state or final usable state

The order of these points of entry is important, because the further down the list you go, the more lucrative the profits. It stands to reason that if you're looking for Sunfury Signets (Scryer Rep item), all you need to do is find someone to farm them. It's a bit different with something such as Primal Shadow as not only do you have to find someone to farm them, but you have to also compete with other factors such as that raiding guild who just got to Mother Shahraz and needs to supply their entire guild with Shadow Resist gear (of which Primal Shadow is a primary material component). Because of this varying need, wild fluctuations can exist, and often more so than simple farmable items. The ultimate problem with selling both is that essentially, the AH price point boils down to market saturation/the number of people willing to farm the items and demand. It becomes very difficult to set a higher price point as a high sale price generally brings in more farmers because its easy and quick to farm them. This is why Asian gold farmers prefer to sell easy to farm things like Ore, Herbs and Primals.

The final point of entry is my suggested point of entry and unlike the other two points, there's another factor: the skill factor. Not everyone can craft a Glyph of Fear and not anyone can cut that Bold Living Ruby. This skill factor provides another opportunity to increase that price point and while it may be represented by that 5 gold tip for that gem you cut for someone, it may be a 15 (or a 150) gold profit on the AH.

However, finding the specific crafted items to sell does take a little bit of research and a tiny bit of math. What you are going to want to look for are items that
a) can be moved in reasonable quantities and b) have a reasonable overhead. Overhead, for those who don't know, is the cost associated to own the item before you're able to sell it for profit. Overhead increases with each successful/unsuccessful AH listing in the form of listing deposit and AH cut. Marketing items that don't sell often (~one/week) means that even though you may get a reasonable profit from your sale, all it takes is one competitor to completely cut you out of the market.

Let's take a real world (orly?!) example and look at my Priest. Her professions are 375 Tailoring/360 Inscription. Of these two professions, I've chosen to focus on Inscription due to good match to the factors above: Glyphs a) can be moved in reasonable quantities as every player wants to glyph out their characters and b) have very little overhead as glyphs only cost a few copper to list (and c: closely resemble the future of Jewelcrafting in that patterns must be learned over time)

Looking at this point of entry, we cannot be more overwhelmed at the sheer number of trainer taught glyphs that we could sell. Overall, there are more than 10 glyphs per class per game, of both Major and Minor classification, and with WotLK, both types of glyphs will have several inscriptions/patterns that need to be learned over time. However, this is where our expertise comes in to play. After spending some time looking at the profession and the individual glyphs, we notice a few things:

  1. Minor and some Northrend Major glyphs are on a 20 hour cooldown discovery system and seem to sell well regardless of how trivial they may seem
  2. Major glyphs are frequently oversaturated depending on the quantity of individuals leveling Inscription
  3. Some Major glyphs have been able to command a premium price due to their usefulness in PvE, PvP or Both.

So when looking at our potential pool of marketable items, we've essentially narrowed them down to the following items:

1) Any minor glyph
2) Any major glyph that is heavily desired by PvE'rs and PvP'rs.

Pretty obvious, no? Well, naturally, but when you look at the thought pattern that goes into this type of analysis, you can reasonably translate it to work with any profession or niche in the game. To wit, I've applied this decision sequence to Engineering, Jewelcrafting, Tailoring and Enchanting and found some pretty awesome sustainable markets.

Surprisingly, even though there's an absolute glut of Inscribers out there due to the 'newness' of the Profession, there are very few individuals who are willing to stick with the profession for a profit and I often find myself either the sole supplier or one of few suppliers for a glyph that any level 70 inscriber can make. Just because there are people of similar professions as you, it doesn't mean they're actually actively pursuing your markets. This point goes back to the first Core Rule from Part 1, which was: Participate in your markets as much as possible. The more you look at what sells and what doesn't sell, the more you're able to take advantage of it. Anyone want to buy a Glyph of Fear for 40 gold? You may not, but I know about 10 people who did.

The thing to remember is that after you've established your market entry points or your 'core market' (now that you've been in it for a bit) it is generally a wise idea to stick with the market, even if others move to take a slice of your pie. Even if the market completely tanks, realize that you don't have to list anything, but at the very least, keep an eye out for when the rats bail on the sinking ship. When they do bail (and they will), the market will readjust, representing a more reasonable and expected price point. Remember, your average AH'er is a 'rat'. They'll run in when the pickings are good and then disappear when they're faced with adversity. As long as you have a broad enough portfolio of goods to trade, you'll be fine. Which, conveniently, brings us to the last topic, Diversification.

Diversification and Situational Markets

Diversification is the act of spreading your wealth across multiple markets to protect yourself against wild fluctuations. If all you sell are Bold Living Rubies, you're going to be pretty hosed if several more people get the pattern and start undercutting you to steal your market share. However, if you happened to obtain every single Living Ruby Pattern, you'd be pretty well set to weather any influx of traders. That's diversification. Diversification doesn't necessarily have to be within one Profession and it can be through items that you don't even know how to make, but the point is clear, taking advantage of an additional market can help you maintain a constant cash flow.

When we think about other markets to diversify into, often times, we are looking for markets that either have long term stability or have low sales but high returns. Let's give some examples. With my Druid, while able to cut nearly every gem out there, we diversified into Enchanting materials and Spellthreads. By keeping an eye out on the Primal Market, we began to sense when would start to bottom out and buy primals en masse. Primal Earths got turned into Large Prismatic Shards via the Jewelcrafting recipe: Braided Eternium Chain, and Primal Lifes/Manas got turned into Spellthreads. Primals of all sorts got transmuted and cut into Meta Gems or Tailor specific cloths. I didn't necessarily have the professions, but a quick advertisement in the Trade channel often got me a 5 gold transmute (and any associated procs). There were endless (lazy)individuals who were willing to sell their transmutes for a nominal amount, giving us the opportunity to double and sometimes triple (or more!) our initial costs.

The important point with diversification isn't that you shouldn't need go in all hog wild into another profession's market once you've established your core markets. It's just some sort of buffer to sometimes slow market segments. However, if you find that you have extra time standing around in Org or square jumping in Ironforge, and you think you can handle a deeper representation in another market, go for it. What you'll find is that you'll begin to recognize when to shift markets at different fluctuation points and that you're capable of processing the raw materials into whatever the market is demanding. It's sometimes nice when you have a few hundred stockpiled primals and ore to turn into whatever you need at that moment, instead of having to scour the AH or spam Trade chat.

These sudden market demands are what we'll label as a Situational Market. These markets come and go with the changing game environment, such as a World Event or an encounter need. Since these markets are often unstable, decisive action to enter (or not) is needed. Fortunately, with the added risk comes added reward and as such, returns on such successful ventures are quite high.

Let's give an example. With the recent influx of several thousand new Deathknights (our guild doubled over night), the serious levelers will let nothing stop them from acquiring the best leveling gear in their race through TBC so they can join their guild in Northrend. Of the craftable gear, the Adamantite Plate Set, made by Blacksmiths is a superb leveling set with great stats and gem slots for continued viability. A few Primals and a few Adamantite Bars costing ~45-75 gold and one can craft any of the pieces. As the only seller of these items on my server, we've taken advantage of the situation and have easily doubled our investment.

Naturally, the point isn't to boast about sales and profits, but instead to illustrate that with a bit of foresight and anticipation into emerging markets, you can position yourself to create markets and command a high margin of profit for your ingenuity. The difficult aspect of this new market creation is letting people know that the items are there for them to buy. For this, I'd recommend a macro that announces your salable items, preferably directed to the individuals who would need them. Yes, there's a possibility that others might find out about your grand plan, but again, the game is full of lazy people, and 99% of them can't be bothered to go calculate the returns on such items.

So, with all of this new found knowledge or perhaps a tiny refresher of what you already know, go forth and fleece the general population. If the points that I've laid out seem easy and simple, it's because it really is that easy and simple to make gold.

Give it a try!


Sonny said...

I make decent money on the AH selling enchant mats, and you've gotten me curious about Jewelcrafting. The high AH deposit cost of jewels worries me though.

I worry that a rise of Gorilladin AoE farming and the fall of drumming in raids will leave Skinning, my easy-mode gathering profession, less profitable.

I'm definitely guilty of crafting the entire Frozen Shadowweave set without ever making my own cloth.

Chu said...

Definitely. Get as many cuts as possible right now and dont worry about the deposits too much. The mark up on the Jewels is more than enough to cover the deposit. Also, with this volatile market, dont list for more than 12 hours and as long as you have desireable cuts, you should make a profit

Hans said...

Proffesor Chu

Do you do anything at work?

Chu said...

Yes, I correct spelling mistakes.

It's 'Professor', not 'Proffesor'


hans said...

phone post

Get back to work