RE: Learn How To Vend
Chapter Four: Everybody is complaining about my prices!
Note: The following section contains a tiny bit of basic math.??It's not my problem if you don't understand it.
So you've opened up your shop in a good location, you've stocked it with items, and now you're getting hate mail.??It's pretty disheartening, right???You feel like the world is against you and you'll never make another sale again.
Well buck up.??The odds are that you've gotten under then skin of a few malcontents who would complain if you were giving the stuff away for free.??Ignore them.??The only thing that matters in this game is the numbers at the end of the day.
Keep track of your income.??Work out your average profit per day on the things you're selling frequently and watch that number.??Adjusting the price should make the number change as your throughput balances out with your profit margin.??There's no one optimal value for it, but in principle a higher price will still give you a reasonable return on investment, unless you're actually overpriced.??In theory, assume some limit to sales in any given town if the item in question is at its bare minimum sale value, let's say 100z.??For the sake of argument, let's assume that the amount of sales with respect to this initial value (a.k.a. normalized to the initial sales) is goign to decrease linearly.??Sure, this is pretty unrealistic, but it's a first-order approximation for example's sake.??Additionally, there's a linear increase in profit with increasing price.... because that's obvious.??Anyway, when you multiply the sales rate together you get your income, normalized to some base level, and that's graphed below.??Yeah, it's an approximation, but the principle is there.??Higher prices translate into more sales until a point where the reduced sales overcome the increased income.
Now that said, some things have pretty well-defined prices.??Empty Bottles spring to mind.??Getting more money for those is going to be tough, so you may want to look for something with a better margin.??I know I just said everything is sellable, but some things are significantly less profitable than others.??However, if you're looking at this as a draw to keep people checking your shops, then even standard things like bottles could be sufficient, just not terribly profitable unless you can get them in bulk yourself.
Now the point of this chapter is that the correct price is something you need to work out for yourself without listening to the whiners.??If the whiners knew what they were talking about they'd be running a shop.??To expand on that, occasionally the whiners will run a shop.??You'll notice this when a shop opens right next door that is very similar to yours but with slightly lower prices.??They're characterized by little imagination and even less market sense, but an abundance of time and dedication to cutting into your sales.??In most cases this is a one-shot thing where they'll get bored after a week or three and then leave.??In a few cases, you're going to have to put some thought into your pricing.??Now if you're selling one-off things, this is less of an issue, but if you're also selling common things it becomes a big deal.
So if you haven't been listening up to now, the only factor that you should be concerned about is your actual income.??In this respect, a price war is never good; it reduces your income rate and takes up your valuable time underpricing kids who don't understand the basis of what they're doing.??But if you want to come out of it ahead, you can't just rely on innovative marketing.??You need to keep your profits up or be able to afford a while with low income.??To do that, you need to figure out your bottom line.??This assumes that you're paying money for something, but it also is applicable when you're buying it from another vendor and reselling for a profit.??Either way, it's important.
Definitions:
Pv = Vending price
PDC = your max DC price
Pw = cost to use warper (based on a round-trip)
Pk = cost to use the kafra
Nbuy = Number of items you can buy at a single time before needing to put them in storage
Nwd = Number of items you withdraw from kafra in a single session
Vend tax exists and it's roughly 2%*.??Your break-even point is then whatever you can get as a DC price, factoring in that you're going to lose 2% to tax.??If you have an item that you can buy for 100 zeny, your not-wasting-time price is 103 zeny (1).??Selling for anything less than this means you're losing money per sale.
(1)?? Pv(1-0.02) >= PDC.
Beyond this, you need to consider what it costs you to get to where you want to be to get the stuff you need to sell.??If you're selling berzerk pots, for example, you need to pay the warper to get to Comodo, to get back to where you're selling, and any associated costs like the Kafra.??The expanded break-even equation is then:
(2)??Pv(1-0.02) - Pw - Pk/Nbuy - Pk/Nwd >= PDC
This is the price per unit that you need to have in order to not lose money.??According to 7-11, every single competitor has at one point or another gone below this price point and lost money on a sale.??Don't do that..??Know this number for every item you have, since if you have a good enough idea, you're likely going to need to protect it.??At this point, keeping track of sales is also going to serve you well, as you compete for market share.
As a secondary point, this number is not necessarily a bottom number.??Everyone may have a different PDC, but just because you have to sell for more it does not necessarily mean you're not making a difference.??Selling for less means you're making less, and if you have a razor-thin margin then you're not necessarily making money, you're just not losing it.??Look at that total profit number, sometimes just having sales isn't worth it.??Additionally, a very important factor in these cases is time**.??Dynamic pricing means you need to be checking as frequently as possible, otherwise you'll fall behind and become less relevant.
So what do you need to take away from this???Well, prices are dynamic and you want to maximize yours while also maximizing sales.??This is extremely variable between items and locations, and is affected by competition.??Don't listen to the vocal whiners, listen to your statistics.??Also: price wars are extremely time-consuming and require a lot of careful analysis, but can pay off.??If you were to start a shop to compete with a chain like pnp right now, the odds of success are high, so long as you're dedicated.
Protip: If you're competing with someone who doesn't check their shops regularly, sometimes it's more profitable to buy them out and raise your prices than reduce yours in hopes of selling more.??You have a window of opportunity there.??Use it.
* In terms of calculating price per item it's actually not exactly 2%.??The actual math is much more complicated and based on the total sale.??Just know that if you're operating in the region of 1z profits per item, you want to get out of there as fast as possible, since there's a chance you could be running a charity and not realizing it.
**As I've been authorized to say: 7-11 just didn't have the time to put into the game anymore.??Math and analysis only works when you have the time to make them work.
(This post was last modified: 05-18-2010 08:48 AM by Avogadro.)
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