A lot of articles I read talk about how much gold/hour you can earn by following a certain technique. If only the process were so simple! The idea is this:
Sale Price - Cost of Creation = Profit / Time to Make = Gold/hour.
It seems simple, but should this be the primary method for determining our gold-making strategies?
The Real Cost of Items
Items don’t just cost gold to procure. There are lots of factors that go into an item’s cost, but not all are as easily defined by their purchase price. While you should definitely be concerned about the purchase price, there are other factors involved :
- How much bag space does this take up? Every slot you fill with this item is one slot you can’t use for something else. This affects your total gold-making potential as you have limited space to store cheap items for later use. We sometimes label this Opportunity Cost.
- Where’s the best use for this item? Volatile Earth could be used for making leg armor, belt buckles, dream cloth, or other items. Where is your best bang for the buck? We sometimes call this Return on Investment or ROI.
- Should this item even be purchased? How much Gold can you make with this item? If you aren’t sure, you’ll have to spend time researching it. You might even have to take a loss on some items before it starts turning a profit.
- How much processing time is involved? It might be cheaper to buy ore and prospect it for your gem business. But the processing takes time. Is it a better return than buying the raw gems and cutting them for profit? I prospect very little ore myself, instead relying on the purchase of cheap gems off the Auction House. Could I make more by prospecting? Probably, but all my play time would go into the prospecting/gem cutting and I wouldn't be able to profit off Enchanting or Leatherworking as much. I might also only be able to prospect and sell 50 gems, but I can purchase and sell 100 in the same amount of time.
The trick to maximizing your profit is not in running a simple gold/hour formula to find the most profitable item, but the sweet spot between supply (raw mats and processed goods), demand (sales) and time. Hypothetical example:
- I can procure 300 Volatile Earth/Day for my desired price or lower.
- I can sell 100 Volatile Earth via Drakehide Leg Armor (5 sales/day).
- I can sell 40 Volatile Earth via Ebonsteel Belt Buckle (10 sales/day).
- I can sell 50 Volatile Earth via Enchant Bracer – Major Strength (2 sales/day).
Now, in the above scenario, I have a balance of 110 Volatile Earth that I couldn’t process each day. How do we optimize this? I have a number of options to improve my overall return on investment on Volatile Earth:
- Buy less for a lower price.
- Process more finished goods and lower the price to try increasing sales.
- Sell excess Volatile Earths for a small profit.
- Expand into more items to produce.
As you look to optimize your total gold/hour, consider the following:
- Think in terms of weekly and monthly throughput. My scenario was a single day, which has lots of variation in it. Your weekly or monthly sales will be a more accurate reflection of total output for items.
- Consider where your time is being spent. Don’t be afraid to drop out of some industries to focus on others. You might be making profit on PvP gear, but maybe the time could be spent better elsewhere. It might be more profitable to mill herbs and produce glyphs than to process ore for gems. Shift processing time to glyphs and buy raw gems to cut for Jewelcrafting instead. Try to find the most efficient use of your time. If you produce more than you can reasonably sell, you're leaving money on the table by not dropping out of that really high gold/hour item that doesn't sell and instead focusing on a lower gold/hour item that does.
- Look for the sweet spot on raw material inventory. Ideally, you should never run out of raw mats or their finished products, but you also shouldn’t sit on a ton of mats either unless there’s a big pay-off at the end.