I decided to make this post to get a better idea of how people are pricing their goods and help people decide whether or not something like a second pier for selling goods is worth it. Been crunching some numbers to figure out a good sales price. So here's what I found and I hope it will benefit people.
So in order to set a good price for a product, ideally you'd want to at least break even, meaning you'd sell it for the same amount it cost to produce, it at the very least. Let's take hemp for example.
A Hemp plantation costs -14gold to maintain. From what I understand that means it is 14g every 30 seconds (is this correct??). Although a single shipment from Northburgh takes an hour, shipments between players take only about 43 minutes for a standard ship, so let’s use gold per 43minutes (i.e. gold per batch) as our working unit. So a hemp plantation costs per batch:
14g / 30s * 60s / min * 43min = 1204g/hr.
So a hemp plantation costs 1204 gold per batch to maintain while it is operation. If it is idle it costs half this amount. Also, it takes 10 minutes and 30 seconds for a plantation to produce a single hemp. So how many hemp per batch can a plantation produce?
1hemp / 10.5min * 43min = 4.1/batch
A single hemp plantation running at 100% efficiency will produce 4.1 hemp per batch.
But to sell the hemp requires that you also have pier, a trade storehouse, and a transport ship to transport it from your hemp island to newport. These are the costs of selling. I suppose if you had a pier and trade storehouse on the same island then you can ignore transportation costs but let's include it for this example.
So the costs of these extra items are:
pier: -8g / 30s * 2580s/batch= -688g/batch
tradehouse: -14g / 30s * 2580s/batch= -1204g/batch
small transport ship: -5g / 30s * 2580s/batch= -430g/batch
The subtotal of these costs is -2322g/batch
So finally we want to know the total cost of producing the hemp AND selling it. This will depend on the size of the batch. The costs of maintenance should be divided by the number of hemps sold per batch and the size of the batch depends on the size of the trade ship and whether or not it is upgraded with increased cargo. The smallest ship with no upgrades can carry 40 hemp in a single batch so let’s use that size.
If a batch is 40 hemp per 43 minutes then to produce 40 hemp requires a certain number of plantations operating:
40hemp/batch / 4.1hemp/plantation*hr = 9.75 plantations. Since you can’t have a fraction of a plantation we need to round up always and so we need 10 plantations to produce 40 hemp per batch. Then the cost of 10 plantations is (using cost per hour of a single plantation calculated above):
10plantations * 1204g/batch = -12040g/batch
We add this cost to the subtotal we calculated above to get the total cost of producing and selling a batch of 40 hemp is -14362 gold per batch.
So this means that if we want to break even (meaning recover the costs without making a profit) then we need to charge:
14362g/batch /40hemp/batch = 359g/hemp
359 gold per hemp is the breakeven price for a batch of 40hemp. Then to make a profit, we should sell at a somewhat higher price, and if we sell at a lower price then we will be losing money. What this also means is that it is advantageous to know the buyer/seller and what size ship the buyer will be using. If the buyer uses a larger ship then the batches become larger and you will make more money per batch (or a better alternative is you will give them a lower price and develop a good trading relationship!) For example, if the same calculation is repeated for a batch of 60 hemp, then the break even price is 340 gold per hemp!! Now it is easy to realize the importance of larger ships especially for trading
The cost of producing and selling a product decreases when the buyer uses a larger sized ship (in general but not necessarily always)! In other words, you make more profit because you sell more in the same amount of time.
Is it worth selling a product even if it is at a loss? (i.e. below the breakeven price)
If you already have a pier and trade storehouse; and have a surplus (say full storage) of hemp that's just sitting around then you're still paying half the cost of the plantation simply to keep it and the full cost of maintaining the pier, trade storehouse and transportation ship. In this case it still costs pretty much the same amount but the plantation costs half of what it did before since you have full storage and it is paused. But you are also not selling so there is an added opportunity cost, to put it in technical terms (the cost of not selling something you could be). So yes, if your trade storehouse is not busy and you have a surplus of hemp lying around then it is definitely worth selling even at a lowered price; losing on maintenance and gaining in some sales is better than not gaining at all even if you don't break even. In other words, losing a lot of money is worse than losing less money. But obviously, ideally you want to profit so only do this if you are desperate for quick cash. Someone is bound to pounce on an underpriced product.
I hope you will benefit from this post and get an idea of how to choose your selling price. With this information you can plan a good trading business much better. If you have any comments, thoughts or insight please do share. I made an excel spreadsheet that automatically calculates breakeven prices for various shipment (batch) sizes and plan to do something similar for products other than hemp. I think I’ll list some of that information as I create it to help people out and as a good reference. Finally, please, please, if you see an error or oversight in my calculation then please let me know so we can have a more accurate analysis. Thank you for reading!
Final note: If you want to make this calculation for a product that is not at the beginning of a production chain (linen for example), then total cost of production will be the sum of the cost of production for that product alone and each step of the chain before. So the production cost of linen will be the cost incurred from the Weaver's hut plus the production cost of hemp. Then you add to that the cost of selling (maintenance of pier, trade storehouse, and transportation ship)
********REASONS FOR EDITING:*******************
1) When I first wrote this post I had used gold per hemp as the working unit. This is incorrect because we never carry out trades of a single item, rather batches of items. So when calculating the maintenance costs this makes a big difference since the cost of selling accumulated by the pier, trade storehouse, and transport ship should be divided by the number of items being traded. While the cost of production, that of the plantations, will depend on the amount sold each batch as well and so is not constant.
2) Added the "Is it worth selling a product even if it is at a loss?" section.
3) Edited the final note section. I had incorrectly thought that the production chain diagrams show you how much of each lower tier resource goes into making a higher tier one. For example, the diagram for linen shows 3 hemps for 1 linen, and I thought that meant 3 hemp are used to make linen when in fact that's not correct. It only says 3 because it takes 3 times as long to produce a single hemp as it does to produce linen, so you'd need 3 hemp plantations per weaver's hut for them to keep the weaver constantly supplied. Higher tier products seem to always use only 1 of each of the required lower tier products, but the diagrams show how many you'd need to keep up with their consumption.
4) Found out that trading with other players in fact takes only about 43 minutes per batch rather than an hour.
Last edited by Tea on Tue Dec 30, 2014 12:01 am; edited 16 times in total (Reason for editing : See end of post.)