Wednesday, December 10, 2014

Calculating Value in the Auction House

It's been a long while, but now I'm back in World of Warcraft! Now I'm on Blackhand, and though I started with nothing I'll be capped again (and again). Because if there's one thing I know, it's gold...

Some serious questions arise when you're dealing with the Auction House, sometimes even with items that you sell regularly you may question the value of crafting and listing the item in question. Today, we're going to talk specifically about an old favorite of mine, the tried and true Netherweave Bag. I use this as an example for two reasons, one because when I decided to come back to World of Warcraft a couple of weeks ago I had zero gold, and the Bags offered a nice route to restarting my career in the Auction House. Secondly, despite it's age the NW bag continues to be a solid earner.

Additionally, being an old mainstay from the BC era of Tailoring, it has a low barrier of entry and moreover is relatively stable. Whereas something like say crafted WoD items can be at best volatile markets prone to dramatic sales one day, then being absolutely worthless the next. In short, the bags don't make a ton of gold, but the investment is safe and has a relatively stable return.

Each Netherweave Bag requires 20 Netherweave Cloth (converted to bolts) to craft, as well as 1 Rune Thread per bag. This makes calculating the cost and therefore value of the item very easy (this is the real reason I use the bag as an example). The thread is 50s per, and can be purchased from any tailoring vendor.

The cloth on the other hand, it can be easily farmed or purchased on the AH. Currently on Blackhand the cloth is selling for 4g 59s 80c per 20. That means it costs just over 5g per bag to craft.

Finding this number is vitally important for two reasons, it allows us to determine the bottom most threshold that I'm willing to sell a specific item and still retain profitability. It also allows me to determine a basic estimate of what I would sell the item for if there's no competition, my markup. Between these two factors is the relative value of the item, the market adjusts the value according to competition. But, that's the basics of it.

In the example above, I've got an item that requires very little initial investment to create a finished product. If I make a small amount of gold from each bag, but sell a large number of bags per day I've got a decent profitability. At the price, it's easy to have a bank tab full of bags in perpetuity. We'll cover warehousing/storage at a later date in more detail, but it's worth noting here that even with the addition of the Profession Materials Bank space, operating a NW Bag business takes up a lot of space, but I digress...

How much gold is enough for each bag? How much do you want to make, how little is acceptable? Personally, I sell about 3 bags per hour. I generally list 6 at a time, they sell for as much as 25g each. Oh yeah, did I forget to mention that part? A lot of people have decided to make alts or level old ones up to get the most out of their garrisons, as a result they need bags. I however have settled on the idea of 5g profit as a minimum. If the bags are selling for at least 10g each I'll list them. If not, they'll be relegated to storage until such time as they're needed again (stacks of cloth in the material bank don't take up nearly the space of crafted bags).

Though I've sold these as high as 25, they average about 15g per. And though I've seen the mats as cheap as 3g per 20, they're usually somewhere around 6g. That helps me figure out my average value, I actually assume I'll be paying 7g per 20 every time. That's safe, gives me a little wiggle room. So, that means I try to sell at 12g or more per bag to retain profitability. Not unreasonable.

I see that cost going down steadily however, a lot more people are farming for their mounts in TK now. Or farming Warglaives, Transmogs, etc. That leads to large amount of NW Cloth hitting the AH, driving it's price down. Add to that, I'm actually farming the same mounts and transmog gear myself. And with each new level 100 I get there's just more farming being added to the que. And every week, more "incidental" cloth added to the pile.

This all helps, because again it keeps my investment safe. I'm not putting in nearly as much gold as I've even calculated at this point because of the literally thousand or so cloth I've added from farming mogs and mounts. Likewise, I've found some ridiculously cheap stacks on the AH, undoubtedly for the same reason (though the 200 for 2g stacks were probably an honest mistake).

Truth is, you always need bags. Every expansion needs bags. But for an alt that's doing little, people don't care about huge amounts of space, economy is the name of the game, and the NW Bag has always been king here. Frostweave Bags and other more recent ones offer more space, but they come at a premium because they require more materials. And further, materials that nobody is getting. As mentioned earlier, those very same alts are going to be used for an increased chance at Ashes or for more Mog gear for an alt they've decided they like enough to make look good. It all adds to the pile. And that's how you build an empire, one brick at a time...

I've been back in WoW for a couple of weeks now, and though the army of alts isn't quite up to snuff just yet I've done well for myself. So far, I've earned roughly 100k through the same old tricks. But I'm developing some new ones already, and once the army is up and running I imagine I'll be capped again very shortly.

Khaas the Insane

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