Trading Profit Levers

The route to making ISK can useful be looked at by considering the return you get from the capital you employ in a set period.  Lets call the period a week.

And lets assume, as i do today, that i have wealth of 11.5bn ISK.

Firstly, 4.2bn ISK of this wealth is sitting in my wallet with no chance of earning a return.  Hence, all the return i make comes from my current 8.8bn ISK of sell orders.

Now, the profits i make over a week come from two parts:

Firstly is what profit margin i make on that 8.8bn ISK of sell orders.  Well, i target 20% but believe i achieve about 25% from which comes 0.80% sales tax and 0.90% broker fees, so lets call it 23.3% profits.  I also spend c45m ISK per day contracting my hauling to Pushx Industries, so thats c300m ISK per week of cost which equates to c3.4% of the 8.8bn ISK of sell orders leaving me with a profit of 19.9%.  and, of course, that is before i have to reduce my prices as competition comes in – but lets ignore that for now.

Secondly is how many times i re-deploy that 8.8bn in a week.  For me, i believe of that over the course of the week i make about 8.8bn of sales as it is – i.e. i redeploy the 8.8bn ISK of sales 1.0 times.

Therefore, my weekly profits are (capital employed) x (asset turnover) x (profit margin) = 8.8bn x 1.0 x 19.9% = 1.75bn ISK.  Which will give me about 7.5bn ISK per month.  From that is taken off a Plex of c500m ISK and then comes the costs of reducing my prices as competition comes in . . . . and that could easily cost an additional 1bn ISK per month leaving me with 6bn ISK per month.

Notice though that there are two levers i can pull to increase my profits:  firstly i can attempt to increase my margins; and secondly i can attempt to increase my redeployment (i.e. increase volumes of sales).

However, these two levers are related.  High sales volumes often means low margins because there are more competitors involved whereas high margins often means low sales volumes because there are less competitors in a slow market and so allowing these high margins to exist.

The “station trading” strategy goes for the high redeployment (i.e. high sales volumes) and low margins.  Combine that with the very high capital employed then the profits can be very large, indeed much larger than my strategy of “Regional Hauling”.  The margins they achieve are wafer thin but wafer thin margins of 1.0% on 50bn of capital employed which is redeployed  7x in a week can given you 3.5bn ISK profit per week.  That is their magic.  Achieve 3% margins and you are looking at 10.5bn ISK per week.

My strategy of “Regional Hauling” goes for the high margins with the low redeployment and so far i am getting 1.75bn per week, perhaps it will rise to 2bn but that is as far is it will go unless i am willing to apply more time to the game per day.  Currently 45 minutes per week day.

Both strategies through eventually hit a ceiling dictated either by time available or items available to trade.

The holy grail is to find high margins and high volumes – and i suspect those are to be found in the smaller trading hubs outside of the main 5 trading hugs of Jita, Amarr, Dodixie, Rens and Hek.