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Wednesday, 22 January 2014

Using Rush Jobs leads me to better profits.

Push Industries hauls items for third parties around Eve (similar to Red Frog).  Push Industries has two types of fee: a normal rate or a Rush Job rate.

Below, i will demonstrate why paying 20.8m ISK for the Rush Job to haul items from Jita to Dodixie is better than paying 5.8m ISK normal rate to haul the same items from Jita to Dodixie.

Consider the scenario.  I have bought 400m ISK of items from Jita, i believe i can make an operating margin of 20% on them when i sell them in Dodixie (i.e. i hope to make total sales of 500m ISK from those items leaving a profit before broker fees and sales taxes of 100m ISK).

I also know it will likely take me 10 days to sell all these items.

I have 3 choices on getting these items from Jita to Dodixie.

1) I can haul them myself - that is the fastest but the least safe but at least all the profits go to me.

2) I can contract the hauling to Push Industries (or anyone else) and pay 5.8m ISK and it will take up to 3 days to get there.  And so i keep 94m ISK of the profits before broker fees and sales taxes.

3) I can contract the hauling to Push Industries and pay a premium to get it there in less than 24 hours (often in less than 5).  In this case i would pay 20.8m ISK and so keep 79m ISK of the profits before broker fees and sales taxes.

Now, add in one key point - making ISK is a function of 3 things: the profit margin on each sale; how often you sell these items; and how much capital you put into your business.  Essentially, profit over time is the profit margin made on sales x speed of sale x capital.  And what we want to do is optimise all three parts of that nice equation.


Lets assume i don't haul them myself - takes time that i would rather be devoting somewhere else and over time i will be ganked.

So, lets look at what happens here under the second and third options (and for this example lets ignore broker fees and sales taxes):


Assume i use the normal hual rate:

on day 0 i buy the 400m ISK of items from Jita.

By paying the normal hauling rate of 5.8m ISK i get them to Dodixie on day 3 and put them up for sale for 500m ISK.  By day 13 (3+10) i am sold out, making sales of 500m ISK, and so buy them again from Jita for 400m ISK.  I again pay the normal rate of 5.8m ISK to get them to Dodixie on day 16 (13+3) and put them up for sale for 500m ISK.  By day 26 (16+10) i am sold out, making sales of 500m ISK, and so buy them again from Jita for 400m ISK.  I again pay the normal rate of 5.8m ISK to get them to Dodixie on day 29 and by day 39 i am sold out, making sales of 500m ISK.

in all, it took me 39 days to make sales of 500x3 = 1,500, incur buying costs of 400x3 = 1,200 leaving profits of 300m ISK from which i paid hauling fees of 5.8x3 = 17.4m ISK leaving me profits of 282.6m ISK.


and now lets assume i use Rush Jobs instead:

on day 0 i buy the 400m ISK of items from Jita.

By paying the Rush Job hauling rate of 20.8m ISK i get them to Dodixie on day 0 and put them up for sale for 500m ISK.  By day 10 (0+10) i am sold out, making sales of 500m ISK, and so buy them again from Jita for 400m ISK.  I again pay the Rush Job rate of 20.8m ISK to get them to Dodixie on day 10 (10+0) and put them up for sale for 500m ISK.  By day 20 (10+10) i am sold out, making sales of 500m ISK, and so buy them again from Jita for 400m ISK.  I again pay the Rush Job rate of 20.8m ISK to get them to Dodixie on day 20 (20+0) and by day 30 i am sold out, making sales of 500m ISK.  I again buy the items for 400m ISK from Jita, pay the Rush Job rate of 20.8m ISK to get them to Dodixie and put them up for sale on day 30 (30+0) in Dodixie.  By day 40 i have sold them all making sales of 500m ISK.

in all, it took me 40 days to make sales of 500x4 = 2,000, incur buying costs of 400x4 = 1,600 leaving profits of 400m ISK from which i paid hauling fees of 20.8x4 = 83.2m ISK leaving me profits of 316.8m ISK.


. . . . . and these things scale very nicely.  If instead of buying 400m ISK from Jita i was buying 2bn ISK of items to sell at 2.5bn at Dodixie, the normal hauling rate would be 11.5m ISK a time vs the Rush Job rate of 26.5m ISK.  Running through the above example with these new numbers means the Rush Job option would make profits of 1.9bn ISK vs the Normal Hauling rate of 1.5bn ISK.


In all, the Rush Jobs have ensured i get my items on sale very quickly and so improved my [speed of sale] which has resulted in me making more profit.

11 comments:

  1. You need to get more operating capital. Your problem is that you wait until the items have sold before buying more in Jita.

    ReplyDelete
    Replies
    1. If you know it takes 10 days to sell in Dodixie, and you know it takes 5 days to ship to Dodixie, then buy your next batch of stock in Jita 5 days before the current batch finishes selling.

      Delete
    2. I think you've missed the point, Gavin. The argument being made is that, for any given investment, you can turn it over faster using the rush job option and thereby make more profit because you can repeat the cycle more quickly, as opposed to the less expensive but more time consuming regular job.

      The point is valid whether you run one investment cycle at a time, or run overlapping ones.

      Delete
    3. Gavin - you're not wrong, but there's still an opportunity cost associated with keeping your isk tied up in goods-in-transit. Which is to say that the money you have spend on those goods could be invested in another sale in the same time period. This was not mentioned in the article.

      Outside of EvE take a look at the Toyota's Just In Time production system where you minimize the amount of time assets are sitting idle or otherwise not being actively used for production.

      Delete
  2. When the article started I assumed it was because people undercut trying to get sales so every day prices get reduced by like 1%. If you take the slow lane someone else will overtake you and sell before you even arrive,

    ReplyDelete
  3. Interesting analysis, but I'd like to point out a couple of assumptions that may have biased your example to favor the rush job. First, you assume that the regular contract will take the full 3 days to arrive (based on terms of the contract). Thus, each regular cycle takes 13 days, earning you 94.2m after hauling fees, or 7.25m/day on a 400m investment. In contrast, you assume that the rush job arrives instantly, rather than allowing a full 1 day (again from the contract terms). Your assumption leads to a 10-day cycle earning 79.2m profit, or 7.92m/day. However, if you allow one full day for the load to arrive, an 11-day cycle earns the same 79.2m but is only 7.2m/day, slightly less than the daily return with regular loads.

    To go further with this, you might consider using average completion times rather than the allowed completion times under the contracts. You can probably (not in-game to confirm at the moment) get this data from your contract history, assuming that you’ve used both types of contracts in the past and can identify which contracts were regular or rush..

    Second, you assume that you earn the same operating margins (20% before hauling fees) in both cases, although your volume is 30% higher with rush contracts (10-day cycle vs. 13-day cycle). Depending on what you’re selling and what share of the market you have, increasing your volume might require higher buy prices in Jita or lower sell prices in Dodixie to move it all in the same time frame (and/or more effort in managing your orders).

    I'm not trying to argue that rush orders are a bad idea, but it may not be as clear cut as your example suggests. The advantage would also depend on the ISK value of your shipment (as you mention at the end), how quickly your items sell, etc. I assume that your example approximates your current practices, but it may be worthwhile to play around with the numbers for a little sensitivity analysis.

    ReplyDelete
    Replies
    1. I use regular jobs for my contracts with red frog, and when you are sending low volumes (in terms of cubic meters) between two trade hubs, they usually get finished within around 6 hours. I assume this is because when they pick up a high volume rush job between the trade hubs, they can usually still fit extra contracts if they are small enough in volume.

      This assumes that you are trading smaller items like blueprints, implants, or skill books etc., but I've never had a regular contract with red from take more than around 12 hours, so I just set up my hauling jobs before I go to bed, and they are almost always done in the morning.

      Delete
  4. I just use public contracts to move my goods between trade hubs and post the contract in the haulers channel. Usually contracts get picked up within an hour. Completion time is normally less than a day. I post them with 550k per jump which is the regular rate in the haulers channel.

    So the service is as fast as PushX with a fraction of the cost.

    ReplyDelete
  5. I have a Red Frog alt hauler and the queue of jobs waiting to be accepted and delivered is rarely over 24 hours - and those are for trips from remote areas to other remote areas usually. A cargo from Jita to Dodixie would get delivered much quicker (I'm sure this is the same for the Push haulers too).

    As an added incentive, you might add a couple million to the reward - on the Red Frog board this is noted prominently - and it will get priority service from someone looking for extra isk. If you boost the 5.8 million reward up to 8 million - I'd be amazed if it didn't get delivered in a matter of hours (it certainly wouldn't sit there for 3 days...). It'll boost your profits in the end by cutting down your expenses.

    ReplyDelete
  6. A tip for PushX and generally hauling:

    If you keep your volume under 9.5k and your collateral under 1.5b you will usually get your orders filled within 12 hours without a rush order. This is because it can be run by blockade runners, and there are lots of pilots looking for those jobs.

    ReplyDelete
  7. I regularly use Red Frog, and they always deliver my stuff from Jita to Hek in under 6 hours. I never ask them for rush jobs, and the cost for Jita - Hek is 11.5mil. I believe that Jita-Dodixie is not much more (can't remember how many jumps from the top of my head right now)

    ReplyDelete

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