## Friday, 16 September 2011

### Profit Equation

Ok so Critical has already introduced the Business Team. Now it's time to link it to Profits. The above is a simple equation but it is very insightful for understanding how to compete in a ultra competitive market.

Lets change one variable at a time:
1. Increase Sales and no change to Craft and Buy costs, Profit goes up.
2. Decrease Craft cost, Profit will go up too.
3. Decrease Buy costs, Profits will also go up.

Wusses run away from 1g profit margins. Market Leaders look at at that equation and when faced with low Sell prices, understand: to make this work I need to decrease my Craft cost or my Buy cost. Then they start figuring out ways to reduce Craft costs and decrease Buy costs.

The Market Leader is the leader because his Craft and Buy costs are lower than yours and can make stuff cheaper than you.

1. Ok. I have a question for you.

Glyphs take herbs to make. What do you do when your competitor decided that they have the time to farm their own herbs, and puts a 0g value on them?

I have my own strategies, but would like to read yours.

2. Foo, you let them. Owning a market sometimes means letting someone else mill themselves into frustration.

3. @Foo firstly your assumption a farmer values their herbs as 0g is wrong. If they make/sell glyphs they would know how to sell herbs on the ah. This puts a floor higher than 0g.

Let's assume a farmer does mill/make/sell glyphs really cheaply eg 3g. Anon is right let him. Also don't buy them out let them "naturally" sell.

What you have to do is make sure you put CG floors and ceilings on all glyphs. Don't let the farm-seller sneak any glyphs above your ceiling price. One 200g sale pays for all the other super cheap glyphs. That's probably where you went wrong with MV. You didn't flood and maintain 12 of every single glyph which is what CG advises (3 walls of 4).

4. Oh I agree that their herb cost isnt zero, even when they farm themeselves. However when chatting to them yesterday (and yes, I do chat/wave to the opposition), they claimed that their herbs were free, and 'it was all profit'.

Of course when I offered to buy their inks instead, they 'wouldn't do that because glyphs sell for so much more'. Well - they used to.

However, just to confirm - even you don't feel the need to be 'market leader' in this scenario?

5. Someone who makes and sells salads only using veges from their garden patch can only make a limited amount of salads. There is no way he can make and maintain all glyphs.

Let's say he can. Setting up glyphs, multiple walls makes sure they can only sell below your floor. Let him. This gives you time to breath, think, research
and conduct Threat Assessment. If he can survive with your walls for over a week something is wrong.

Please understand the ML is not the lowest cost seller. It is the person/company who has the most control in that market eg Apple in the tablet market.

A ML aims to drive out all serious competitors. Don't worry about single glyphs, focus on the bigger picture, the person behind glyphsellerX. Make him absolutely hate the glyph market and you will find yourself with more of the Pie.