Hello!
The purpose of this thread revolves around one topic, and one topic only:
"In most cases and from an economic standpoint, the sole act of making a synth, creates profit, when you farm the material(s) you need for said synth. Especially if the item is the most expensive in the recipie."
This is an idea I had when many a time I read people saying basically that "It's the same to buy or to farm, since time is money", and they are partially right, but I thought I'd clear that up for once and for all.
Should we start?
Here we go!
A- Economic Briefing
Economy studies the decisions individuals, enterprises, government and families make, to make the best use out of their scarce resources. Everything is scarce: Time, money, resources, capital and even people (In FFXI we would talk of: Time, gil, materials, crafting level and crafters). In economic terms "scarce" means that you are not able to satisfy all of your needs and desires, due to the lack of the above things. If people could do it, there would be no need for this science to exist. Expressions like "Nothing in this life comes free" and "Time is money" are well-known and describe briefly the economy's mechanics.
The economic science divides into:
a) Micoeconomics - The study of the decisions people, enterprises and families make to fight with the scarcity (sic? not a native english speaker)
b) Macroeconomics - The study of the impact these decisions make into the economy as a whole, but seen in a wider range (Government, countries, world).
First of all, there are three Microeconomic principles we must consider. I'll just keep it simple so everyone can understand them. These are:
(1)Opportunity Cost (OC), and
(2)Marginal Benefit (MB)
(3)Comparative advantage (CA)
1.- The opportunity cost. OMFG! What do I do?
The opportunity cost is the price you have to pay for choosing option A over action B. The opportunity cost is the inverse reciprocal of your choice. The most logical thing is that people choose the option that yields the lowest OC, but this can change due to MB and CA.
Example A: "Peter, a very brilliant guy, decides to go out a night drinking with his friends instead of studying for his mid-term. We all know Peter can get an 10 (Scale from 1 to 10) if he studies. So he goes out and gets a 6.
- The opportunity cost for choosing going out is 4 points of his test.
- The opportunity cost of studying for his exam, was a night bar-hopping.
Example B: "SefirrothXx, an Elvaan DRK, saved 1'200,000 gil to buy a Haubergeon. He goes to the Auction House at Jeuno and bids all his money. The OC of doing so is... you guessed it! 1'200,000 gil. The OC of not doing so is... a Haubergeon.
2.- Marginal Benefit. WTF d00d, i dnot care farmin 4 hrs fi I gte 2 b 1337!
Marginal Benefit (in simple terms) is a measure of how much OC you can withstand before choosing another option. MB is increased by incentive, money gain and preference.
Example A (Incentive): "SefirrothXx obviously needs all the accurracy he can get. In this case, the marginal benefit of aquiring the Haubergeon for 1'200,000 gil is high compared to the OC he has to endure. But... what if he already has got a Haubergeon? Then MB drops to ZERO and OC skyrockets, resulting in him not doing it."
Example B (Profit): "SefirrothXx farms regularly for cockatrice meat, and he makes quite a profit from it. He could also choose to get lizard skins, seeing that he has BLM leveled. In this case the meat is selling for more, so the MB for the meat is worth the OC (Lizzie skins). But wait!! The new CoP expansion is a great chance to get Bugard skins, and they sell like hot bread!! Then, the MB of the Bugard skins calls Sef's attention and off he goes, not caring about his new OC (meat)"
Example C (Preference): "SefirrothXx wishes to be a high level Smither, and have signed Barone stuff all over his elf body, eventhough Clothcrafting demand has increased (and thus the price), The MB for being a Smither surpasses the OC of clothcrafting, so he buys a stack of fire crystals and starts his career. He won't last long, but that's another story."
3.- Comparative advantage. I am teh ub3r!
Comparative advantage refers to the difference in OC between two (or more) people in the same situation. The person with the lowest OC (and larger MB for that matter) for a same situation, is said to have a CA over the other(s). CA grows with specialization and work division efficiency. In FFXi we could say specialization comes with crafting (Higher level = more HQ results, for example) and division comes with the selection and level of jobs (Level 75 THF comes to mind).
Fact A (Crafting level): The opportunity cost of synthing three (3) grass threads is one Yagudo necklace. A person with level zero skill in Clothcraft will always get three threads per necklace. A person with level 100 skill is more likely to get twelve. His OC is now 1/12, instead of 1/3, so he has got CA (remember OC is the inverse reciprocal of the choice made).
Fact B (Job selection): In one hour, a 45 WAR is able to get 5 balls of saruta cotton. In the same time, a 45 THF can get 14. The THF makes the most out of his hour, so his OC is lower, thus resulting in bigger MB and a clear CA.
Fact C (Job level): Let's forget for a moment the debate wether LVL affects drops. A person who is higher level is able to kill mobs faster, kill mobs with better loot, and equip Job trait enchancing equipment. Efficiency wise, a 75 THF with TH+ stuff, makes more out of his hour than a 75 NIN, giving him more CA (even if said NIN subs THF). A 75 RDM/NIN, might have certain CA for high-end soloable mobs that a THF cannot defeat.
In short, CA reduces OC, and increases MB.
B- The sole action of synthing creates profit
Now on to the topic that interests us. Crafting profit.
Everytime I log on to Alla and check the tradeskill forum, I see people starting threads like this:
"When does xxxx craft get profitable?"
"Which craft should I choose"
"I have xxx gil, to what level..."
"Xxx craft sucks"
As a response, I just have to say that every single one of the crafts is profit since level zero if you are willing to sacrifice time and effort traveling, doing some farming, selling at AH and anticipating AH moves!! And here's why:
First, the NPC sell price evidence.
You are going to synth a Hachimaki (Level 11 Cloth recipie).
In order to do so, you need:
- Wind crystal
- 2x Grass cloth
Get these materials and head off to the NPC, click on the items and check the numbers (Done at level 0 fame):
- Wind crystal: 14 gil
- Grass cloth: 39 gil *2 = 78 gil
This adds up to 92 gil.
Now, go synth the damn thing, and check the NPC sell price.
119 gil!
So, 119 - 92 = 27. Profit 27.
This is clear evidence that the sole action of crafting was designed to create a profit. The inflated prices on the AH don't let us realize this, but it does!! And, if you wait long enough to sell in the AH at 300 gil per Hachimaki, you make a total profit of 2100. Not bad for only leveling your job from 1-10 outside windurst and getting Wind crystals and Necklaces from the same beasts: Yagudo.
Now, for the real problem, the NPC (buy -> sell) theory
It is NOT worth it to buy ALL the ingredients from the NPC, synth and make a profit from this. Some minor items like flour and distilled water are well worth NPC price. This is obvious, even with max fame and guild prices, you will lose money this way. To counter this, you have two ways around it:
- Buy from the AH, in most minor items price is above the NPC sell price (ex. Chocobo feathers). *Some* medium materials tend to be above NPC price (saruta cotton), and the critical ones (like cockatrice meat and venomous claws) are ridiculously overpriced.
- Farm the materials.
The second option takes us to:
C- The old lie: farming for crafting materials is unprofittable
Many a time I have heard people say that if you farm for your materials you end up with the same as if you bought it from the AH. This is NOT true. It is true that "Time is money", but there are certain cases that farming is worth it, and here we apply the economic principles:
1.- The opportunity cost and marginal benefit. To farm or not to farm?
Based on the theory of opportunity cost, you should farm if the time you sacrifice is worth the gain in gil. For example, I need some Animal glue. It sells for 8k in the AH, You might take 1 hour to get a whole stack. OC for buying it from AH instantly is 8k gil. OC for farming it is one hour. If you don't have an hour, but you have the gil you are most likely to buy it. If you have the time, but you are uber rich, you are most likely to buy it. If you have the time, but you don't have the gil, then the MB of farming increases, despite on your 1 hour OC.
In the other hand, the venomous claw sells for 4'500,000 gil at the AH. It takes 24 hours to get Serket. The OC for farming it is 24 hours. The OC for buying it is 4'500,000 gil. I doubt you can make that kind of gil by other means in 24 hours, so your best bet is to farm it. The MB of doing so is INCREDIBLY HIGHER than the OC you have to face.
This applies to all kinds of recipies. EVERY SINGLE TIME you have to face a recipie with a costly item, compare your OC with your MB, and take a decision based upon that, whether to farm it or not.
2.- Comparative advantage, JOB; LEVEL AND CRAFT LEVEL. I am teh ub3r!
JOB
A well suited job can reduce your OC for farming certain materials thus increasing the benefit of doing so. When you are more efficient/faster, you increase your MB, amking it possible for you to change your mind and decide to farm something.
JOB LEVEL
A higher leveled job increases the options available. You get to choose more profitable options, and become more proficient in the lower ones because of higher firepower, better JA's, etc. You decrease your opportunity cost for the option chosen, and increase MB on your current decision.
CRAFT LEVEL
Craft level increases your HQ yield. If you read the example I wrote earlier, you should have it clear by now: Higher level means more:
- HQing
- Options
D- Conclusions and tips
Well, this is almost over. Time for some conclusions tips:
1.- Farming for an expensive material on the current recipie is profitable when:
a) MB is equal to OC (Your choice here)
b) MB is higher than OC (See Venomous claw example, or Shining cloth)
2.- Farming for some minor recipie item, such as distilled water is not profitable because NPC sells it for less than AH, and the time (OC) might not be worth it.
3.- Farming for "middle items" (wool cloth, etc) is profitable if:
a) You have a craft level based CA (more yield, thus making your MB more attractive)
b) You have a THF 45+ (same as above)
c) You are high level (BLM can kill 30 lizards with one nuke)
4.- DO NOT FARM if:
a) You consider the time is worth more than the gil paid at AH or NPC
b) You don't have that time
c) You could instead increase your CA (leveling THF from 44->45 for example)
Now some tips:
a) ALWAYS buy the minor items from the NPC
b) Keep your mules, one in each city preferrably, so you can check the AH prices and try to save some gil.
c) DO NOT powerlevel your craft when a costly material is in the recipie.
d) If you have the patience, sell ALL your stuff at the AH.
e) Anticipate the market. The NA is now reaching level 60. If you are fairly high level in one craft, start filling the gaps in the supply, for a quick buck.
f) ALWAYS COMPARE your MB with your OC. Remember you can increase the first and lower the second working on your CA. Not only in FFXI, but take this as somethink you can apply to real life as well!
Hell that was some post, wasn't it?
Remember that even if I am at 5.00 rating, you can still rate up, as it counts towards the average post karma ^^
Cigar-