Yesterday, I showed how to setup a spreadsheet to track your portfolio of products that you are trading on the Trading Post. Today I will quickly go over some of the key things you should be tracking, and how to easily go about it.
Trading Post Fees
Trading Post fees are easily to calculate. The cost of posting something is five percent of the sale price. Thus, if you post something for one silver, the cost of making the post is five copper. If you cancel the sell order you do not get this fee back. The Trading Post also takes another ten percent when you make a sale, so for then item we posted at one silver, we will be charged another ten copper when the items sells. All-in-all the TP takes fifteen percent of the final sale price, with five percent being upfront. Now, that means that you will essentially take home eighty-five percent of what you post an item for. In other words/, to make a profit selling at one silver, you have to buy at lower than eighty-five copper, or in general, you need to sell for at least, 17.6% more than you bought for.
It is important to know this fact, because this is your only expense. This expense will determine whether you make money or loose money. A calculator is enough to figure out your break even points, and my spreadsheet factors this in automatically. Another handy tools is tpcalc.com. It simply does the calculation describe above showing you your costs and profits.
COGS and Inventory
When we talk about Cost of Goods Sold we must also talk about how you calculate your inventory. There are a lot of different ways you can do this, and a lot of different ways it is done in the real world. There are three major systems, First-in, first-out (FIFO), last-in first-out (LIFO), and average cost. My spreadsheet uses average cost, because it is the easiest to implement on a spreadsheet. I simply add up the amount you have paid for a certain product and divide by the number bought. This is the average price per unit used to calculate Cost of Goods Sold.
|Average cost inventory.|
LIFO on the other hand would have you sell the eggs you bought most recently first. Thus you would sell those you bough on Wednesday first and work your way towards the cheaper eggs you bought on Monday. In general costs of goods rise as time goes on. Inflation, in general, is driven by an increase in the money supply. As there is more money available people are willing to pay more for things. Thus, in general, FIFO will have you selling your cheaper goods first, and LIFO will have you selling your more expensive goods first. This is a general statement though for the long term, and doesn't apply to the short term, nor necessarily to the long term either.
It does bring up an interesting thing to consider, though. Do you sell your more expensive inventory first? or the cheaper stuff? If, in both scenarios you sell for the same prices, than it has no affect what-so-ever on your profit. In the real world, companies use different methods to make their business looks more attractive to investors. In this game, it really only matters to you. If you prefer to get the expensive stuff out of the way first, then do that. If you prefer to see big profits quickly sell your cheaper stuff first.
In the end, use the inventory system that works for you. Then use this system to arrive at the Cost of the Goods you are selling. This way you can effectively evaluate your trading post fees and profits. Even if you do not apply this to your trading in game, I hope you learned something about real world accounting.
Percentage of Inventory
|My current inventory, as a percent of the total.|
The final, and most obvious stat to track, are your profits. For starters it is a moral booster to see this number slowly growing and to know your efforts are paying off. Secondly, once you break profits down to margins and start examining them on the basis on each commodity you will see where your efforts are meeting the most reward.
|Based on current (Dec. 11th) prices|
my expected ROI shown per commodity
Next, you can calculate your return on investment (ROI) so that you know how well your money is working for you. The calculation for this is simple, take your net profit, and divide by your costs (Cost of Goods Sold, and TP fees). This is the percentage of what you invested that has been returned to you. The higher the ROI the more lucrative the trade. ROI is not the be all and end all though. Trades with a low ROI, but a high turn over may be more lucrative than a high ROI with slow turn over.
The point here is to give yourself the tools to analyze the strategies you are using going into the market. This way you can re-double the efforts that are proving successful, and abandon those that are not. You can also examine the numbers closely and see where you went wrong and how to avoid future disasters, and on the flip side you can see how you succeeded and apply those strategies in other areas. Not only that, but the morale boost given by seeing your numbers rising, bars on graphs growing, is quite telling. Instead of abstract numbers in your head, it starts to become a real thing you care about and want to grow. Either way, the point is to have fun. If this is not fun to you, than do not do it. Continue with whatever systems you have in place that are working for you.