Thursday, March 28, 2013

Business Thursday: my planet farmed it for free

"I farmed it for free" is a common statement among dumb people who are unable to understand opportunity cost. They assume that every action that earns them money is profitable, just because they got money. They ignore that they could get much more money with the same resources if they did a different action. They are practically considering the resource they had "free", hence the epic slogan.

The simple form is only common among idiots: he farms a whole evening and considers the income pure profit. However people who are not idiots, simply not careful enough can make similar mistakes. And they often do, as we will see today, with the Planetary Interaction of EVE. Imagine that you have a charming barren planet (as far as barren planets go). On this planet you have an extractor for aqueous liquids and another for base metals. Both extract enough to support 4-4 basic factories that turn these raw materials into water and reactive metals. Next to them there are 4 advanced factories eating up the water and the reactive metals, producing water-cooled CPUs. Each create 5 pieces an hour and they sell for 2300 ISK, so you generate 2300*5*4*24*30 = 33M/month with a colony. Congratulations, you made profit.

Actually not. If you'd destroy the advanced factories and just sell the water and the reactive metals for 340 and 320 ISK each, you'd earn (340+320)*40*4*24*30 = 76M/month. The profit of the advanced factories is -43M. Unless water-cooled CPU can be looted somewhere, it is created by dumb people who assume that their water and reactive metals are for free. I know, I know, they aren't dumb, just play for fun and making water cooled CPU is so much more fun than making coolants (which is actually profitable).

Making livestock and selling it for 6000*5*4*24*30 = 86M/month isn't much different from selling its P1 materials, biofuels and proteins for (110+550)*40*4*24*30 = 76M/month, so it's more or less indifferent, right? No, because simple is always better. For the first colony you have to find a planet that can support both extractors in proper amounts and not far enough from each other so you can link them. If just one material runs dry, you have to pack and go. Not to mention that the 4 advanced factories could be replaced by extractor heads and basic factories. Finally you probably noticed that 550 >> 110, so it's guaranteed that if you'd just run a single protein extractor planet with a 10 head extractor feeding 8 basic factories, you'd make much more money (550*40*8*24*30 = 127M/month). Complicated always needs to be justified with extra profit.

The above is true for higher level PI. If you are making Camera drones, Condensates, Guidance Systems, Hermetic Membranes, Industrial Explosives, Planetary vehicles, Supercomputers, Synthetic Synapses, Transcranial Microcontrollers, or Ukomi Superconductors with the current prices, you are doing it wrong. Even better: if you make any kind of P4, you are doing it wrong, each and every one of them creates less profit than a P3 factory. It doesn't mean you can't make money with them, you just could make more with a selected P3. I guess people are so obsessed with producing top tier stuff that they forgot counting. Alternatively they need the compression that P4 gives (typically in WHs)

If you make something profitable like Neocoms, it's no excuse to have an unprofitable step in it, like making Silicate Glass. Import Biofuels and Precious metals, combine them to Biocells and combine those with imported Silicate glass!

If you keep these in mind, you can get 150-200M/month per colony. People get less because they don't have an up to date spreadsheat or they use someone elses and just check the end result, not optimizing the internal chain: Neocoms are profitable even if you make them with self-made Silicate glass. It doesn't make it right though to litter your planets with silicate factories instead of more biocells and Neocom factories. Have something like this instead:
Top left receives biofuels, bottom left precious metals, right silicate glasses. Left factories produce biocells, right ones Neocoms. Something is missing from the picture, it will be the post tomorrow.

If you don't want to mess with spreadsheets, it's fine. But then stick to something simple like extraction + refining to P1 and selling it. A well-ran P1 planet is more profitable than a badly ran P3. Please note that prices can change daily, what was profitable yesterday is not surely profitable today. Again, if you don't want to bother, run P1, they are always profitable, price changes can only affect the amount of profit.

13 comments:

Anonymous said...

how big an influence does tax rate have?

I've never really used PI but my understanding was always exporting p1 and selling on market was rarely profitable because of export taxes.

Anonymous said...

Dat Command center! Why is it even in the picture, do you not know that command centers merely need to be ON the planet, somewhere, and that's the end of their function?

Gevlon said...

Tax doesn't really matter as you must export P1 anyway as you can't have 4 extractors to support a P3 factory.

The command center as a temporary storage does good job during construction of the planet. All the biocells (the products of left side) are routed to it and routed from it to the right side. This way it's easier to check if I did not make a mistake during creating the routes.

Anonymous said...

The thing which is left out of consideration is the volume of the final product which should be transported. I'll leave it up to you to figure out how much trips you'll have to make to transport your 80M worth T1 PI products to a market hub.

And you should also take into account the fact that not all PI is done in highsec and in certain cases the logistics is a problem.

p.s. Tech2 production doesnt use raw PI products, it generally requires T2 or T3 pieces (which are by far the second to largest consumers of PI after the fuel production) and barely any reasonable person would bother crafting the needed materials himself, its just way easier to buy them off the market and injecting into the fabrication.

Anonymous said...

You forgot one simple thing - Volume of P1 goods. You will fill storage much faster and you will need huge transport to collect all PI which will be slo or fast with multiple runs. P1 is very inefficient, while advanced goods you don't need to collect them that often, thus isk/hour is better in the end.


Not to mention each time updating programs if you set on optimal 24h timer. I laugh how people like to compare PI to passive income. Passive my ass. If you timed all your actions for all colonies/accounts and put total with monthly income it will look like a joke.

The only profitable PI I believe is in high end planets WH/null where you don't deplete resources fast and can make advanced goods much easier.

Gevlon said...

The volume of P1 goods isn't that high, they are around 800-1500 ISK/m3. You just jump your freighter to your first planet, then the second, third ... and dock up.

Tone-Lone said...

A little on the side of your post, but I had an encounter with one of those "farmed it for free" people yesterday.

I was bumping in the ice field when a guy in a Mackinaw started talking big words about how I had to watch my back, since he was rich, and would come get me. The convo:

Me: Why do you even mine ice if you are not afk?
Him: I need it for my ships.
Me: Why not buy it off the market then?
Him: Why would I buy something I could get for free, silly.
3rd: Obviously, Tone(me) is to young to understand how economy and profits are working.

As it appears, a 3M ISK/hour activity is for free, but doing something more profitable and then buying that ice is silly.

Anonymous said...

running all the planets will take some time with freighter flexibility. Plus if you run PI on different toons, each has to have Freighter skills.

No matter the way you look, i would choose instead to update few orders in that time in market pvp

OskaRus said...

Volume of the goods might be problem for people who have no acess to JF.

Plain producing T2s on each planet is also very comfortable. It takes only about hour and half a week and makes about 12M isk a week per colony with transport costs (nullsec-jita) already accounted for.

So its still matter of effort vs. profit. For bigger effort of daily hauling T1 or T0 you can have higher profits. But I think that activeHr/isk will drop. What is your experience?

Johnicholas Hines said...

Other people have already said this, but I think you'll find that if you're constrained by different things (capital, volume, schedule of logins), different setups are optimal.

You might be interested in multi-objective optimization - then you get a broader "efficient frontier". http://en.wikipedia.org/wiki/Multi-objective_optimization

Some people may be in the interior still. :P

Von Keigai said...

I second a number of obvious criticisms that people have already made.

Volume matters. You cannot easily run more than three launch pads (two is more likely) per planet. Therefore the total amount of PI goods you can accumulate before having to physically enter the system is either 20000 or 30000m^2. (Storage can extend this, at the cost of adding micromanagement.) Any trip to a PI system requires time, or (if you base yourself there) keeps you away from other places where you might make money. Similarly flying PI goods to market takes time or money.

Right now, for example, my spreadsheet shows that every single P1 good is losing money (relative to not running the BIF, just picking up the R0 and taking it to market). But how large are the two? A nullsec planet can generate something like 1m R0s per day from one extractor, more if you micromanage. These have volume 0.01m^3 each, thus 10000m^3/day. This requires daily attendance in the system, if only to move to a storage or into orbit. If you process 1m R0s/day using BIFs (you'll need 7 to keep up), then you get 6666 P0s. These take up 0.38m^3 each -- total volume is 2533, a quarter the volume! Of course, if you could magically move PI goods, you'd lose profits. But you can't -- you have to move them around the planet, into orbit, then pick them up, get them to highsec, and then to a market. All of these steps require time and/or expense.

Furthermore, anyone who wants safe PI has to do it in highsec. There you face a stiff tariff, which makes most production other than ground-up unprofitable. If you do your PI outside of highsec you can get 0% taxes, and make much more profit. However, then you can also get ganked, and so you want your goods to be minimum size. Every bit of size counts here, because industrials and transports trade off cargo volume for (a) warp core stabilization, and (b) cost. Or even, (c) tank. I do pickups in cheap, unrigged industrials with warp core stabilization.

Second, prices of all PI goods fluctuate. With no tariff, almost all PI goods are profitable to make. Profit levels will vary by item day to day, but economic theory tells us that since the inputs are not scarce, the profits should be uniform per level. And this is largely what you will observe on a spreadsheet. There are some notable exceptions, for example, there's an idiot out there manufacturing huge amounts of Planetary Vehicles, losing vast amounts of money doing so. Planetary Vehicles have been a loser ever since I have been doing PI (almost 6 months). But they are exceptional that way.

Anyway, because of price fluctuations and the relatively long time to market, without long-term observation you cannot really know what sort of profit you will make next week for today's PI. Furthermore, it is costly (in ISK, but more importantly, your real-world time) to retool a PI production line. So should people stop making Water-Cooled CPUs? I don't know, because I have not watched that product for a while.

Von Keigai said...

If you are making Camera drones, Condensates, Guidance Systems, Hermetic Membranes, Industrial Explosives, Planetary vehicles, Supercomputers, Synthetic Synapses, Transcranial Microcontrollers, or Ukomi Superconductors with the current prices, you are doing it wrong. Even better: if you make any kind of P4, you are doing it wrong, each and every one of them creates less profit than a P3 factory.

You are assuming highsec tariffs (10% up, 5% down). With 0% tariff (which one can get outside of highsec) the picture is very different. Currently I see five of the P3 goods that are unprofitable, and one of the P4s. Also, the profit per factory of P4s is much higher than P3s. HTPs do require a bit more resources than AIFs, but not ~5x as much.

tangurena said...

Making P4 items is necessary if you are in a wormhole. Even when it is not cost effective - and I claim that the logistics problem for w-space occupants is why P4 items sell in the market at below the cost to make them.

1 broadcast node takes up 100 m3 in your hauler. The parts needed to make one takes 648 m3 in your hauler. When your route to market changes daily and depends on a random number generator, you value compression over total profits.

As for currently what's "most profitable" - that is not very relevant to me (now that we are located in high/low sec) as I'm consuming all of my PI production into my manufacturing line.

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