What am I doing wrong? (Industry stuff)

[IainC]

I have an alt in Empire that I thought I'd use as a money maker to subsidise my spaceships habit on my 0.0 main. I've got him set up with a small-scale invention and production business in Empire and the plan was that he'd be pulling in a modest profit each month from selling consumables like ammo and cap booster charges to mission runners along with some t2 stuff.

I'm inventing and producing drones, propulsion mods and a few ships (Taranis, Helios, Eris and Ishtar).

I'm building all the T2 components myself from researched BPOs. I'm buying datacores from the market mostly but I'm buying them at well below sell order price, likewise I have buy orders out for all the moon materials as well as stuff like Morphite.

I made myself a spreadsheet to track the costs of this stuff and to make sure I'm accounting for all of my costs. I price minerals at the top buy order price, I cost in datacores that I get from my R&D agents at the same price I buy them at, I work out the average invention cost for each of my T2 lines and factor that into the final cost and I'm finding that my production costs are in many cases far above the market sell price. What am I missing?

Case in point: T2 mining drones. My costs look like this:
   
Laser Focusing Crystals*1=18940
Mining Drone I*1=6011
Morphite*3=23400
Photon Microprocessor*1=6220
Robotics*3=20670
Average Invention Cost=161270.4918
Total=236511.4918

So they cost me 236k to build and the average sell price for them on the market is only 120k. What gives? I can't believe that everyone else but me is producing them from BPOs.

Eris is another good example. An Eris costs me 40.5mill to build including a ~7.3m invention cost (I also build the Catalyst from a researched BPO) but the market cost is a shade under 30 million.

Am I missing something really obvious or is the market really controlled by builders selling at a loss?

I make a small but realistic profit from ammo, combat drones and cap boosters however I'd like to diversify.

[Reg]

You aren't using decryptors when you invent are you? I haven't used them in months - it's the only way I've maintained any profit at all doing this.  All of my module invention is done without any of the optional components that make it more likely to work or make a better BPC. I still use them for ship invention but only because ship invention fails so much without them.

[IainC]

You aren't using decryptors when you invent are you? I haven't used them in months - it's the only way I've maintained any profit at all doing this.  All of my module invention is done without any of the optional components that make it more likely to work or make a better BPC. I still use them for ship invention but only because ship invention fails so much without them.

I don't use decryptors or base items for any of my invention. I did some quick maths and worked out that they weren't worth it unless you were building seriously expensive parts like t2 battleships or t2 rigs. For instance Ishtars cost me an average of 16.23 million to invent without a decryptor. That's 5 million worth of datacores per go with about a 29% chance of success. If I used a 1.8x decryptor that would cost me an extra 47 million per try so 52 million with a 52% chance of success which gives an average cost of about 100 million per try. Even with the resulting 5 run BPC, that works out at 4mill per ship extra plus whatever the difference is from the slightly worse ME. My margin would be completely wiped out by that.

[Reg]

Well in that case I have no idea at all why the T2 stuff you`re inventing is going so cheap. Perhaps there are too many T2 BPOs out there still being used.  I make stuff that I`m fairly sure never had a T2 version before the Invention system was put in.  T2 Cargo Expanders for example.

[TheDreamr]

Couple of thoughts from the last time I looked at invention semi-seriously, ignoring the "people are stupid" causes (namely; my own datacores are free, my own minerals are free, materials don't change price once I've bought them)

1. T2 BPO holders can bypass several of the steps eating into your profits (invention & negative ME).   If they can meet demand then probably far easier to undercut stock from invention rather than having to micro-manage everything hourly.

2. Sourcing T2 materials was one of the big costs on some ship builds, could be your competitors have access to a cheaper supply.


For giggles, try pricing up some of the electronic attack frigates - as there's no BPO holders to compete with you'll get an idea how close your production estimates are.

[mokianna]

  I 'thought' decrypters never go poof, buy one and use it forever. Now, I have never used one so I cannot confirm, but if that is the case, you have a one time cost, not a per item cost for them. Also, based on the T2 prints you can buy, only build from the most profitable ones, selling the rest on contracts.

[IainC]

 I 'thought' decrypters never go poof, buy one and use it forever. Now, I have never used one so I cannot confirm, but if that is the case, you have a one time cost, not a per item cost for them. Also, based on the T2 prints you can buy, only build from the most profitable ones, selling the rest on contracts.

Decryptors are used up just like datacores regardless of the success of the invention attempt.

[5150]

 I 'thought' decrypters never go poof, buy one and use it forever. Now, I have never used one so I cannot confirm, but if that is the case, you have a one time cost, not a per item cost for them. Also, based on the T2 prints you can buy, only build from the most profitable ones, selling the rest on contracts.

You're confusing decryptors with data interfaces I think

[mokianna]

You're confusing decryptors with data interfaces

Yup, sorry for adding to confusion.

[NiX]

Paging MahrinSkel.

[Vedi]

I did T2 invention and production for about a year and made resonably good money, but it is not obvious to me what is wrong. However, you do not go into details how you calculate invention costs so there may be something there, at least for the mining drone example. This cost is affected by your use of decryptors, skills and more, so you may want to go into the details on that and play with the variables. (One obvious thing you are doing different is that I always used base items for modules.)

When I did T2 invention, I did notice that the market for some items are dominated by T2 BPO holders. You need to identify them and stay away from those. I made a lot of Invulnerability Shield IIs, which did not seem to suffer from this at the time. Some items are priced lower than production costs in the market for several reasons:

• Stupid people: ("minerals I mined are free", "I don't care about profit - I just want to build stuff").
• Price wars or oversupply.
• T2 BPO holders.
• Price lag - the stuff was made when minerals/datacores/whatever was cheaper and the seller hasn't updated his prices.

I'm afraid that once you are reasonably certain your calculations are correct, you must do them for a lot of modules and pick those with good margins and volume. Another trick is to set up operations in a secondary hub where raw materials may be marginally cheaper and end product marginally more expensive. Traders will tend to erase these differences, but transportation has a cost too and by producing locally you can include the transportation premium iin your margin. Of course, you won't have the same volume.

[IainC]

Ok, my invention cost is worked out by adding up the cost of all the datacores per try then multiplying that by the reciprocal of my invention chance as determined by this tool.

I don't use base items for most of my invention as only a Meta 1 item or higher makes a difference and that's not an option for ships or drones (as the T1 variants are meta0). I also don't use decryptors having done some number crunching (which you can see in a previous reply to this thread).

[Jayce]

What market?  Jita of course gives you the best volume, but you might get more per unit if you set up shop in a niche market, like a mission running hub, a local pirate area in or near lowsec (as long as you don't have any welps  ) or even the edge of 0.0 somewhere.

If you can become the primary supplier in such an area you might get enough volume to satisfy your needs.

[IainC]

I'm based at Fricoure in Sinq Laison which means I'm supplying the mission/mining hubs of Auvergne, Mirilene and Bereye and am close to the market hubs of Dodixie, Aunia and Jel.

I set up there because I had standings with Duvolle and there are two L4 R&D agents in the same constellation there.

[Kovacs]

There is quite a bit of money to be made in invention with decent skills/standing.  As an example I've finally gotten settled in Hek making T2 cruiser mods. and cleared +18 mil. in profit yesterday.

I think I would use a different costing method to more accurately reflect my actual costs and get a clearer picture of my real margins.  Using actual average material costs and if you are getting your datacores for free then you'll want your equation to reflect that.  That helps comparison of the opportunity cost of inventing BPO's using the datacores I get from my agents versus selling the datacores to maximize total profit not just margins.  

So eve-central is what I use to help decide what items may have the best margins.  Sorting by region and using median sell price for items I'm buying and vice versa i get a pretty good idea of where to start.   If nothing appeals to you or fits your skills you may want to diversify into rigs.  The components can be a real PITA to get your hands on if you don't have a corp supplying the mats but the margins are better and there are no better margins than on T2 rigs if you can actually sell one.

Lastly, are you sure you calculated your invention success chance correctly?  29% base chance sounds really low.  As that can run 50+% of your total costs increasing your skills will probably be worth the investment.

** And as for your Mining drone example I think there's a calculation error.  Doesn't each ivenstment on the invention side make 10 drones?  Your inventin costs may be 10X to high.  And you'll want to calculate the costs of the original item not using market cost but your own actual cost mfg. them using your BPO.

[IainC]

There is quite a bit of money to be made in invention with decent skills/standing.  As an example I've finally gotten settled in Hek making T2 cruiser mods. and cleared +18 mil. in profit yesterday.

I think I would use a different costing method to more accurately reflect my actual costs and get a clearer picture of my real margins.  Using actual average material costs and if you are getting your datacores for free then you'll want your equation to reflect that.  That helps comparison of the opportunity cost of inventing BPO's using the datacores I get from my agents versus selling the datacores to maximize total profit not just margins. 

Datacores aren't free though. If I use the ones I get from my R&D agent to invent with then I'm missing out on the revenue I'd get from selling them. That's a cost (lost earnings) equivalent to buying them.

Lastly, are you sure you calculated your invention success chance correctly?  29% base chance sounds really low.  As that can run 50+% of your total costs increasing your skills will probably be worth the investment.

I'm using the equation given here. My skills are mostly at 4 across the board but it seems that skills make only a small difference to the outcome, decryptors and base items are the main modifiers. For example on an Ishtar with skills at 4 my base chance is 30.16%, if I take all skills to 5 that only increases the probability to 31.5% - a small return for ~60 days of training. For Drones and modules my base chance is higher as they are easier to invent than Cruisers (40% base as opposed to 25%).

[Endie]

Have you tried modelling the process using EveMeep?  It allows you to find out precise costs and margin for any invention run.  Any production run at all, in fact.

[MahrinSkel]

Paging MahrinSkel.

I never did production, I prided myself on being strictly a market parasite, producing nothing but just moving stuff around.  TheDreamr probably has the key element, most T2 the production is fully satisfied by BPO's, and invention merely serves as insurance against cartel or monopoly action.  For every possible use of invention components, you're sharing cost structures with every *other* possible use of those components, including those where T2 BPO's can't supply demand.  So if you can't produce at a profit, it may simply not be a viable niche for Invention.

Competing against total vertical integration can be a problem, but only where that is widespread.  Was common in the BPO-limited production era where prices were set purely by demand and production exceeded normal usage, much rarer now outside of the T1 market.

--Dave

[Arthur_Parker]

When I played everyone removed or ignored the minimum quantity column from the buy/sell interface.  It's pretty easy to make billions in Jita when you have a crazy high buy price (2% or so below market rate) to discourage overbids, only your buy price has a high minimum number of items requirement that need to be fulfilled.  Few people spot that and end up selling to one of your lower, much more realistically priced buy orders.  Sometimes you end up losing hundreds of millions when someone dumps a mass of stock in one go but mostly, once you find the right items and scare the .01 isk changers off, you just sit back and watch the cash flow in.  I'm probably not explaining that very well, it's been a while.