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Sunday, 25 May 2014

The Fight against Diminishing Returns

This is a business post, "Diminishing Returns" is not some corporation we are all fighting against . . . . 

Over the 12 months to the end of April my wealth went from zero to 104bn ISK.  However, the profits i make in recent months are a smaller percentage of the wealth i have deployed in Sell Orders, Manufacturing etc than they used to be.  That is something i suspect all business operations in Eve come up against at some stage.

Below are four charts which show the progression to this point with some discussion on growth and returns.



The chart above is the main chart i look at to review my growth in wealth.  Quite simply, it shows my wealth at the end of each month with the blue bars measured in billions (left hand scale), and the daily profits i was making with the red line measured in millions (right hand scale).

So, in September and October, when i was purely trading and before i started manufacturing, my daily profit was about 240m ISK.  However, once i start to sell the items i manufactured my daily profit peaked in December at 607m ISK.  It then settled down at about 350m ISK per day given i am often away on business.



The chart above merely looks at the monthly profit i made (i.e. daily profit x days in the month) to give a simpler view of how much i am making each month.  So, pre manufacturing my monthly profit was about 7bn ISK, once manufacturing started up my monthly profit rose to 19bn ISK in December (likely an xmas affect in there also) and is now plateauing at about 10bn ISK per month given i am often away on business.

So far, so good.  Can't sneeze at 10bn profit per month - and that is after all costs including Plex for my accounts and the odd ship blowing up as I PVE.

However, as someone pointed out to me in an email, my returns on the capital i have deployed are falling over time.  This is neatly shown in the chart below which looks at the Monthly ROCE i make.  ROCE is short for Return On Capital Employed and measures the profits i make divided by the capital i have (i.e monthly profit divided by total wealth).



I have not shown May to July 2013 because the monthly profits i was making were more than my starting wealth in those months given it was early days and quite easy to find items to sell in Dodixie for 100% over what they were selling for in Jita.

From August to December 2013 i was roughly increasing my wealth by 30 to 40% per month (ROCE ranged from 30 to 40%).  I managed to maintain that level because i was scaling up my operations by moving from items costing 20m to 40m to 100m etc to sell at 20% profit margins + opening up in new trade hubs + starting manufacturing.

It would be great if i could have maintained my ROCE at the 40% levels i was doing pre-January (i.e. my profits in a given month would be 40% of my total wealth the prior month) but that would be very hard to keep up.  It would imply that i would make 40bn in May 2014 alone given i started the month with just over 104bn!  To maintain a flat ROCE i would need to be able to deploy my ever increasing wealth into additional trading / manufacturing that made me similar returns than before.

One method would be to open in a new trade hub - but i am already in all the trade hubs.

Another method would be to play for longer each day - but i am limited to 45 minutes.

Another method would be to find new items to sell or manufacture but i am finding there is a limit.  Though this would be my best route from here - being away on business a lot in 2014 has meant that my research into looking for new items to sell has stalled somewhat.

Therefore, my monthly ROCE has fallen to 10%.  Hopefully i will be around longer from the middle of June through July and August - hence i may be able to increase my ROCE in the near term.

However, i would have fallen further had i not found something to invest my surplus ISK into.

The chart below shows how my wealth is split at the end of each month between sell orders, spare ISK and Plex etc.  It also shows my provision i take (i provide against 20% of the value of my sell orders - see my monthly updates for the reason behind this).



As the chart above shows, the amount i have in Sell orders has not really gone up for the last 3 months which indicates that i am not finding new items to sell in the trade hubs and not finding new items to manufacture.  In reality, what is happening is that i am finding new items to sell but these are counted by items that i no longer sell because the profits are too low.

In January 2014 my spare ISK peaked at 35bn ISK.  That is dead ISK not earning a return and so i decided to invest all spare ISK (less 10bn for business purposes) in Plex.  Hence, the pink part is showing the Plex i hold which at the end of April stood at 64 Plex valued at 45bn.  Over the 3 months since i have buying Plex it has risen in value by 11% (though i have been buying into a rising market so the weighted average rise for me is 4.2%), as shown below.


The chart above shows my Plex holding and timing of purchases.  In all, to the end of April 2014, my Plex holdings have generated an increase in wealth of 1.8bn ISK for me.

Going forwards, i would be happy if i could get back to earning 20bn a month from spending 45 minutes per day.  That would equate to a ROCE of 20% for now.

4 comments:

  1. Real businesses have the same problem, its called management. If you would measure the time you normally would trade / analyze the market, and the time spend in managing your operation, you will find out that the profit has a correlation with the amount of time lost on management tasks. (Order updating, managing jobs, tool updating, etc).

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  2. What is all this money going to do for you?

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    Replies
    1. lol, a good question. I honestly have no idea - for now i just enjoy the Eve financial system.

      I am planning to go into Planetary Interaction next.

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  3. I have found that profits are linked to player activity more than anything else. When less people are in the game there are typically more sellers than buyers and lots of orders just sit on the market waiting to be filled.

    So if we look at player activity in December Rubicon had just dropped two weeks before and the Halloween war was still going on. Since then what has happened in Eve? No expansions in six months, the wars are all over, and no big wars are in the wings. Look at the graph of average players logged in per day and you might find it follows your decline in profits and growth over the same time.

    I am hoping with the new release schedule it keeps people in game and more engaged.

    ReplyDelete

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