Key to Success #2: Opportunity Cost

Hey long time no see! I've taken a break from wow for the time being to focus on university but that doesn't mean I can't still provide some useful gold making tips while I'm away from the game (they'll just be a little bit more general).

So anyway on with the post:

Opportunity Cost?

The Skinny

Nothing is free. Every action you make in-game or out has an inherent cost attached whether it be time or money or whatever. Opportunity cost is basically what your resources could be doing instead of their current use. Using the pic on the right, the opportunity cost of going into door A is missing out on whatever's behind door B. In wow terms, a common misconception is that anything you farm personally is 'free' but this couldn't be further from the truth. If you farm 2 stacks of ore in 20 minutes sure you may have made 80g but that 80g has cost you 20 minutes that could be spent elsewhere. If you had instead used that 20 minutes to buy herbs, mill them and sell the inks for 200g profit then the opportunity cost of farming is the difference between the two: 200g - 80g = 120g.

It may seem like a fairly simplistic concept but it really is that simple. What it boils down to is ensuring that you spend your time on the most profitable activities possible. What those activities are depends on your tradeskills, market knowledge and server but with a little research and trial it is fairly easy to work out.

Where else it's important

Not only is opportunity cost important in terms of your precious time, it is also critical to consider when stockpiling as well. Whenever you buy a large amount of an item to put away for a future where it will be worth more you should consider other potential uses for the gold you spent. When you invest in the future that gold is tied up indefinitely until you sell the stockpile and cant be put to any more productive uses.

For example: if you buy 10,000g worth of ore today and sell it for 30,000g in three months you've made a 20k profit, not bad. However if you instead used that original 10k to buy items cheap on the weekends and then resell them for more midweek your 10k could be constantly growing and working for you as you can then reinvest larger and larger sums.

This is particularly important for those who don't have a massive bankroll as investing a high proportion of your total gold in stockpiling can be extremely counterproductive. As the old saying goes "it takes money to make money" and a 1,000g profit tomorrow that you can reinvest and continue to grow is worth so much more than a 20,000g profit in 3 months that is useless in the meantime.

My parting thoughts

The most important part of this theory is the fact that there is no universal solution; the most effective money making scheme for one player usually wont be the best for another. Working out what you are best at and cutting down on the less productive activities is the key to maximising your profit.

Key to Success #1: Multiple Markets

What's this all about?
This post marks the first in what will be an ongoing series of "Key to Success" posts. At this stage I am hoping to post one of these per week and they will be aimed at highlighting the fundamentals that any aspiring auction house goblin should know and use. So anyway, one with number 1...


Taking advantage of multiple markets.

The long and the short of it

Up first is a relatively uncomplicated concept to understand and implement. The short story is basically that if you sell across more than one market instead of putting all of your eggs in one basket, you will make a lot more gold. Diversification is the key to big time results for the simple reason that if one market tanks you still have several other markets to keep your profits solid until it recovers. In effect if you find an area is in a major slump your daily/weekly/monthly profits will not be too badly affected. On the other hand, if you have everything invested into one market and the bottom falls out due to whatever reason you are basically screwed.

How to go about it

Research is the key to success in diversification, find areas that will provide consistent sales on your server and then climb on board the gravy train. Finding these multiple markets does not necessarily mean finding the three or four biggest volume markets on your server as these typically have the most competition and are often rife with deep undercutting and generally frustrating behavior. The strategy that I have found to work best is to focus on a single big ticket area (in my case glyphs) as well as a bunch of smaller areas as well (bags, enchanting rods, darkmoon cards, ore shuffling, flipping etc).

This is a rough breakdown of my recent sales on the auction house from The Undermine Journal (a fantastic resource and awesome to see it back in action!). As it shows, I get a majority of my sales from the glyph market with about 1/3 coming from other sources.

I am not particularly happy with this as I am relying a little too much on one source for income so I am branching into other markets as we speak (my jewelcrafter/alchemist is a hair away from lvl 75 and all the cataclysm recipes). But still the basic principle is reflected in the above graph; if for some reason the glyph market takes a tumble one week I haven't lost 100% of my earning capabilities.

In my regular travails around the wow blogosphere I found a paragraph written by Markco over at his awesome site Just My Two Copper which sums up how to successfully diversify perfectly:

"Keep in mind that diversification does not mean equal attention to all markets. You should plan and set different amounts of crafting depending on which markets perform the best. No different then investing in the stock market, you wouldn't put all your money into the worst performing stock nor would you put equal amounts into every stock you invest in. Diversify but put intelligent analysis behind it."

That last sentence is the kicker. Backup whatever moves you chose to make with adequate research and analysis and you can't go wrong.