Greedy Goblin

Thursday, February 26, 2009

Bags and the invisible hand

One of my businesses on Maghteridon-EU ally side is selling bags. People need bags, alts need bags, even bank alts need bags. The market is always full with netherweave cloth (well as "full" as far Maghteridon-EU ally goes) so I can buy them up and mass-produce the bags. I've sold over a hundred now, materials cost 2-5G, and I sold the bags for 25G.

Wait, if I sold them for 25, why am I selling them for 16G? Am I an ethical businessmen who don't want to exploit those who are weaker than him in money or information? Of course not! Weaks has the very purpose in the world to be exploited and being ethical is taking the meaning of their life away. :-)

When I started selling bags there were some bags for 40-50G, or no bags at all in the market. I started to sell. After a few days, people started to undercut me. I undercut them. They undercut me. I undercut them. They gave up at 16G and let me be.

Of course I could try to go back to 20, hoping that they won't notice me. Maybe in Maghteridon-EU ally, "they" is just 1-2 guys and they really gave up. In Arathor I got undercut soon if I pulled this trick since there were lot of businessmen. So I don't even try to pull this stunt. After all, I'm still having 11-13G profit on a single bag.

And actually I'm selling much more bags now. The reason lies in the profit-quantity curve. The 16 slots bag is not an essential, you can live with smaller bags or collect money for larger ones. The demand responds well to price. If I sell too high, and have no competitor, people simply decide not to buy bags at all. By decreasing the price, I can increase my profit by selling more items.

So I'm forced by competitors and lured by the hope of higher profit to do the "nice" thing: decreasing my own profit margin.

PS: I get lot of mails saying "Please give some advice, I don't have enough income though I dropped tailoring for JC". Every time you "drop tailoring for profit", a goblin of Booty Bay cries and the Bloodsail Buccaneers cheer! Don't make the goblins cry! Tailoring is one of the most profitable professions. Dropping it is worse than boosting "freindly helpfull ppl" in Wailing Caverns. Everyone need bags of different sizes. There are specialty bags that sell high too. Maybe the profit margin is just 2-3G/bag on your server, but the quantity sold can be several dozen bags every day. Crafting them takes 5-10 mins AFK time daily. Listing them and buying materials take only 1-2mins/day. The income is usually couple hundred G every day. And the best thing: it's completely safe. You can end up with dozens of unsold gems, but I've never seen such thing as unsold bag.


Anonymous said...

I really think it depends on the server. Since WotLK arrived the price of a stack of netherweave on my server has been a constant 3g rising to 3g10s on the weekends. The price of netherweave bags has been a constant 7g dropping to 6g on weekends.

Anonymous said...

Well, I sold my obsolete Runecloth and Moonclothbags for 9 to 15g. But it never occured me to massproduce. When I leveled my tailoring to 440 I produced a lot of Frostweavebags and I ended up to use them on my twinks because people sell them for 50-70g (Materials are 60g+). But I'll try your advice, thx.

On my server there are a few buisness man but the "normal" people bother me a lot more. They sell glyphs for 1g which used to sell for 20. Only herbs and ore are stable at high level which creates frustration if you try to produce something. Sometimes I got lucky and have no competition but the next day I get undercut by a massive margin. Those people want to *sell* and not to make *profit*. Do you have any advice to handle this situation? Controlling the market may be an option but the few times I tried it I hardly brake even.

Carra said...

Yes, raising your prices does not mean making more profit. You might sell hundreds at cost price + 1c but that would give little profit. You sell one for 100g. The maximum profit is somewhere in between.

Everyone has their own maximum they are willing to pay for an item. Ask more and they will go ask a friend to make one or just be happy with their 14 slot bags. The trick is to find the maximum profit range which is quite a hard thing to do.

I've read an excellent post about this on Joel Spolskys blog:
Well worth the time if you are interested in the subject.

Anonymous said...

Very true point,

I am not a tailor but have stuck with blacksmithing, though even so, this profession can be profitable, and we are not talking about the lower than barker priced and over stocked Belt Buckles.

People overlook things such as rods I find, not the higher level ones but the lower, the last week i've made a steady good profit from just fel iron rods due to no competition being availible.

Or even mithril cyliners, or, if you are on an RP server, some of your low level made weapons or armour which look nice, these can sell for alot of cash!

I would advise people to look deep into any profession, there is always gold there.

Anonymous said...

I recently rerolled and was thinking of picking up tailoring so I check out the AH before hand to see what sells. On my server there are 3 pages of the netherweave bags going for 9-10g a pop so I figured that this market had already been cornered by a few people. However with mining I have been able to make 500g so far and I am lvl 31 now. Not a lot I know, but enough for any expenses I do have while leveling.

Bill said...

When I read this, I was thinking "Yeah, my servers too mature, blah, blah blah". So I did a search for Netherweave Bags (which always returned tons). Zero. Not a single one. And only one Imbued Netherweave Bag, with Netherweb Spider Silk down to 5g each again.

I guess from now on, I'll keep an eye on possibly profitable with often saturated markets for lulls.

Anonymous said...

@ Chaoskas: You are absolutely right; "normal" people who are just ought to get a few quick gold don't care about maximizing their sales, they just want 30g for tonight's repair and do it by flooding the auction house with high-level items sold cheap, or if that fails, they vendor good sellable items (as far as I know, 'cause I've got friends like this).

miked said...

i've been selling netherweave bags since i got to level 70 eighteen months ago. they financed my epic flyer and more than covered the cost of all raid consumables and any other expenses i could muster. this post is spot-on. it's hard to find something more profitable and reliable than the bag business.

Anonymous said...

Finding the right things can be difficult. I made a Horde DK so I could get the black kitty vanity pet that only they can get. I've sold a few cats for 1.5k plus, which doesn't suprise me as you rarely see those on the AH. But I also bought 100 of the Carrion Surprise for 45 silver a piece. I put them on my AH (having a friend help me transfer them through the neutral AH) and I sell them for 60-70g very, very quickly.

Carl said...

The profit margins for bags on the servers I play range from negligible to immediate loss. It seems like everyone has a tailoring alt.

Anonymous said...

Tried it yesterday, made 10g profit on each of the bags but there is a lot of competition. But a nice, steady income (the frostweave bag returned because someone sold 15 for 59/79 *sigh*)

Vanye said...

Sadly, on my server, Netherweave bags are hovering around 4-6 gold per bag.
and stacks of netherweave are about 2.5-3g each. No profit there.

However, I have a large supply of greater planar essences and arcane dust, and Imbued Netherweave bags sell for about 60g...

Now, to get my herbalist out and picking up some purple lotus...