Welcome to Jester's Trek.
I'm your host, Jester. I've been an EVE Online player for about six years. One of my four mains is Ripard Teg, pictured at left. Sadly, I've succumbed to "bittervet" disease, but I'm wandering the New Eden landscape (and from time to time, the MMO landscape) in search of a cure.
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Wednesday, September 5, 2012

COGS

I'd like to talk about that forum post that has so many high-sec industrialists up in arms, but to do so properly I'm going to have to give a bit of an accounting class.  So you might want to strap in.  I assure you I'll be getting to a point immediately afterward.  In the post, CCP Ytterbium is asked about the fact that "high-security stations are too good" and is asked if CCP plans to change that.  His answer:
Indeed we do. This topic brought quite an internal discussion, and while this most likely won't be part of a Factional Warfare iteration, we do want to have a look at reducing high-security stations effectiveness to make other areas of space more interesting. Some examples could be reducing refining rates, increasing ISK payment to install jobs. Nothing is set in stone as this is not planned for the immediate future however.
First off, let's make sure to read that last phrase.  ;-)  None of this is planned for the immediate future which means we're not going to see any of this in 2012.  But let's talk about the rest.

In a traditional manufacturing business, a pretty basic concept is the cost of goods sold, or "COGS".  Like many business metrics, it's usually a snapshot taken at a particular moment in time.  But to explain it, I'll simplify.  Say you're an EVE industrialist and you're building and selling Hurricanes.  You sell a stack of ten Hurricanes for 45 million ISK each, for a total sale of 450 million ISK.  Your cost of goods sold for that stack are all of the expenses that you incurred to make that sale.

In EVE, this comes down a series of ISK and material outlays:
  • the cost of the minerals that you used to manufacture the stack;
  • the cost (if any) that you paid in manufacturing fees from a station or POS to build them;
  • the cost (if any) that you paid to have the Hurricanes moved to station; and,
  • the costs in broker fees and/or taxes (if any) to list them for sale at a station.
There's also the possibility for other incidental costs depending on how professionally you want to keep your books.  For instance, you might choose to depreciate the time or ISK you paid to buy your BPO/BPC or research your BPO.  But let's keep it simple and stick with the four factors above.  The sum total of those factors are the cost of goods sold for your Hurricane stack.

Once your character has Production Efficiency V, those four factors are really the only variables involved in the COGS for those Hurricanes.  However, far and away the biggest one is the cost of minerals.  If your blueprint is researched to a reasonable level, it's going to cost you around 42.5 million ISK in materials to manufacture your Hurricane.

But let's zoom in on those "(if any)" lines that I included, because they are important.  Once two manufacturers have about the same skill and the same level BPO, how much of a difference do they make?  It turns out: not much.  As your Trade skills increase, you'll drive your taxes to around 340,000 ISK.  If you pay to manufacture your Hurricane in high-sec, chances are that will cost you about 2000 ISK.

Next to 45 million ISK, these are not big numbers.

Mabrick, who is usually really good about care-bear concerns, kinda drops the ball when he talks about this one.  One of his suggestions is rather than nerfing high-sec stations that low-sec manufacturing should be buffed instead.  Make it cheap cheap cheap, he says.  But it can hardly be any cheaper than it is right now.  So let's say CCP Ytterbium is right and the cost to manufacture goods in high-sec should be increased.  NoizyGamer is considering moving to low-sec over it!  But let's put it in perspective.

In real-world manufacturing, the cost in labor to manufacture goods is a significant percentage of the cost of those goods.  To use the most blatant example, the clothes you wear are made in China because material is cheap but factory labor is expensive.  For example, a typical $80 dress shirt costs $22 to make (trust me on this one).  Of that, about $8 is labor and $14 is the materials.  If I make that shirt in the U.S. instead, that part of the COGS for the shirt increases by almost 50%.

But that's not a fair comparison with a Hurricane.  Let's use an iPhone 4S instead.  To the left is what's called a "doughnut" graph.  It's used to compare like-for-like situations on a percentage basis.  The innermost track represents the basic COGS for a single iPhone 4S, not including shipping costs: just materials and manufacturing.  The blue color represents the cost of materials to make an iPhone.  Purple represents manufacturing costs.  As you can see, manufacturing cost for an iPhone represents about 5% of its cost.  If I triple the cost to manufacture an iPhone (second innermost track), that has a big visible impact on the graph.

Third innermost track is a Hurricane.  The manufacturing cost of a Hurricane, expressed as a percentage, is so small that you can't even see the thin line representing those costs.  In the outermost track, I've increased the cost to manufacture a Hurricane by 50 times... and you still almost can't see it.  Clearly, making high-sec manufacturing more expensive is not going to have any impact whatsoever on market prices in EVE.  It sure won't encourage people not to do their manufacturing there.  If they notice it at all, industrialists will just pass the very tiny cost increase to the buyers and that will be that.

Increasing taxes to sell things in high-sec would theoretically have a bigger impact, right?  Typically, someone with good Trade skills pays about 0.75% in station taxes to sell large stacks of items.  As I said above, for our 45 million ISK Hurricane, that's about 340,000 ISK.  Again, for this small number to have a significant impact on the cost of a mid-level item like a Hurricane, CCP would have to greatly increase that percentage.

But even if CCP did it, to save those taxes, that would assume that people would want to go to low-sec to do their buying and selling.  That ain't gonna happen to significant degree so the impact would be minimal.  Again, any noticeable tax increases -- whatever the cause -- would just be passed on to the buyer of the item.

So getting excited about that part of CCP Ytterbium's post is not warranted, to say the least.  ;-)

However, there's another possibility that's been discussed on and off for at least two years that I've been putting off talking about for quite a while.  I'll take my first swing at it tomorrow.

28 comments:

  1. The solution is not to mess with the mfg price, but with the station bonuses. All empire NPC stations have Time Multiplier = 1.00 and Material Multiplier = 1.00, change that and you will see a lot of people moving to low-sec either to make it faster or to use less materials.

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    1. I don't think so, but I'll talk about why tomorrow.

      Delete
  2. This will make it no different and be just the same as the PI taxes levied in Hi-Sec. It just pass the cost along to the consumer.

    And the misconception that hi-sec stations are better?

    https://forums.eveonline.com/default.aspx?g=posts&t=150408&find=unread

    That's interesting reading, and would be very similar to manufactoring.

    MT

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  3. IMO, the only way to get people to leave hi-sec for low/0.0 is to destroy whatever they are doing in hi-sec; even then, I don't think it will be easy If CCP destroyed their process, almost all of the hi-sec care bears will still stay in hi-sec and just jack up their rates

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    1. No, actually, if you destroy high-sec, then the carebears will just unsub and play something else.

      This has already been happening due to the recent wardec changes and changes to the mining barges. Neither of these changes were of any value whatsoever in attracting new subs, but they are doing a fairly decent job of convincing many long-time carebears to leave the game. I wouldn't exaggerate and call it a flood, but it is definitely growing from a trickle to a stream.

      No forum rage or in-game demonstrations - they just feel that Eve isn't a game that they want to pay to play anymore.

      Unfortunately, certain CCP devs just don't get the fact that you cannot force nor entice high-sec carebears to go become PVP targets in low/null sec.

      Delete
    2. Exactly.

      I am sure there are exceptions, but most carebears (true carebears) will simply leave with no fanfare.

      Eve was fun at one time, but that time has long passed.

      You can add me to the list of those who have left recently and it is fitting that as anonymously as I played, I should post this last message as anonymously.

      I hope you all find something in the game to enjoy, but I suspect I will be seeing many former even playes in other games soon.

      Delete
  4. You said nothing about changing refining rates. What's your thought on that?

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  5. We don't buy iPhones specifically for the purpose of blowing them up again and again. The profit in ship manufacturing means that an income is achieved by manufacturing not one but one hundred.

    And Bryan: no, destroying hisec will push people out of the game.

    To me the “problem” with NPC services is that they are omnipresent and in all cases better quality than anything players can provide in that space. NPC refineries are always better than POS refineries, NOC manufacturing lines are always accessible, always have low time modifiers, cannot be shut down, always deliver to your personal hangar, and involve no risk of theft.

    The fees are one part of the problem, but not the major contributor. Supply chains rely on timeliness not just cost effectiveness. Adding delays and maximum service volumes to NPC refineries while allowing POS refineries to reprocess items and achieve 100% with implants (or never allowing refining/reprocessing to achieve 100% ever) will go a long way to giving players more control of industry.

    Massive changes like only allowing invention labs to be anchored outside hisec will likely cause players to leave the game. Allowing pirate faction only-outside-hisec labs to be better would be good.

    Simply reducing the quantity and quality of NPC facilities must happen in order to move industry into player control. It would be nice to allow individuals to rent labs from third parties too.

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    1. This is a good position. More specifically the part where the nerf needs to have something positive to weigh in. NPC services reduced but player-control gained ? That leads to no unsubs but happy industrialists and new business opportunities.

      Delete
  6. Nice post, Jester.

    Too bad you are not on the CSM, where you could bring this sort of thing directly to the clueless, such as CCP Ytterbium and Co.

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  7. Oh, my God! Everyone is going to move to low sec to do their manufacturing, just like everyone moved to low sec to do PI....

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  8. why god, why did i click that forum link?

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  9. Simple facts, you can't make people do what they don't want to do in a volunteer environment. No one is froced to log in, so guess what, this is a volunteer environment. There is no stick large enough to punish people into going low/null sec. And depending on what it is, apparently, there is no carrot large enough to entice them into low/null sec either. Mineral values suck for low/null, PI is not a large enough driving force when you can just do pickups once a week or something and the rest, well, if it was so great ratting, plexing or whathave you, people would already be doing it in low/null over high sec.

    The issue is, you have an image problem with low/null cultivated by the very same idiots that want to force everyone out there to be targets/victims. You have a brutaly crappy transition area in low sec where you have the absolute worst of BOTH high and null sec disadvantages with no significant advantage at all and you have a rediculous barrier to entry re-entry into high sec for anyone that actually does go out in low to give it a try should they want to actually shoot back.

    So, in short, reduce the barrier to entry to low sec and the barrier to retreat from low sec for those that want to try it out. Maybe, just maybe work on the image problem by either graduating the level of griefing BS you can do in low sec so there is more of a gradual move instead of the cliff or dealing with some of the more vocal turds floating in the pool. And lastly make it significantly, obviously and easily worth it to go there and stay there with a lower barrier of entry.

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    1. I will conditionally disagree with your statement that there is no carrot big enough. Nullsec anomalies based on system trusec was a big carrot that lured carebears to nullsec. I say conditionally because I don't have any figures to support that. But when those anomalies were severely nerfed, the exodus back to hisec was noticeable.

      I do especially agree that removing what people like to do ingame will only make lots of people leave. You can hope that people will adjust and find something else to do (ie., nerf anomolies they go to incursions, nerf incursions they go to FW plexing), but that is a risky proposition.

      Delete
    2. "Nullsec anomalies based on system trusec was a big carrot that lured carebears to nullsec."

      Nope, never happened. What you saw was null sec players moving their high sec mission running alts to null sec (and back to high sec after the nerf), but no carebears ever migrated to/from null sec.

      The only carrot which might entice some carebears to leave high sec would be to fix the sec status issues of low sec. Currently, no carebear is willing to sacrifice his/her ability to freely roam high sec, by going negative sec status. In low sec, this means that carebears cannot aggress first, but must wait to be shot at, before responding, or take a sec status hit - and they cannot engage in podding, at all.

      As silly as it may sound, Concord is effectively protecting pirates in low sec, from being overwhelmed by large numbers of carebear aggressors from high sec.

      Delete
    3. Mordis- the hard question to answer there is, how many of those carebears were income-earning alts for nullsec PVPers? They might have moved to Empire space when the anomalies got nerfed. Of course they'd move back when nullsec had better low-risk income; their mains are already in nullsec, so they're used to it and they aren't afraid of it at all.

      I agree absolutely that in an MMO, carrots > sticks. If you nerf high sec in an effort to move people to what they see as a less desirable area in the game, you will only succeed in making the whole game less desirable.

      Lowsec is empty because it's empty. Think of historical piracy: In its pure form, it usually took place along heavily traveled trade routes, because that was where the money was. They were able to make a living as pirates (though not much of one) because the routes were *heavily* traveled, so the risk to any one ship was low, so risk-averse merchants (who insured their cargo, something EVE merchants can't do) felt OK about traveling the lanes. But if you pilot your freighter into lowsec, you immediately become THE obvious target for every pirate who sees you. There's no safety in numbers, and very little in the way of security through obscurity. It's possible to get a freighter through lowsec, of course, but you have to know what you're doing, you have to have help (even if it's in the form of alts and multiboxing), and you have to be willing to lose the ship and its contents.

      Delete
    4. Absolutely agree with the issue of low, the supposed 'transition' area to null, having the worst of both areas. There seems to be an attitude that high-sec industrialists should HTFU and operate in low because, well, it's harder, and therefore better. But the increased opportunity costs and expenses make it a stupid proposition for anyone who takes industry seriously. I should set up my manufacturing a research POSes in a place where I have to haul in BRs or lose a freighter every week, while having them put into reinforced every month by a group of bored null-sec cap pilots, because ... ?

      And yes, my corp has done low-sec production - for years. The proliferation of caps in the game was what eventually made it not worthwhile.

      Delete
  10. Looking at that matter from eve lore site, it makes almost no sense at all why highsec should get it's station nerfed. This is the richest npc environment in game and low sec is considered as back water worlds struggling with high crime rates and low employment.
    In order to improve lowsec ccp shouldn't nerf high sec but boost low sec. Not in terms of manufacturing cost as they are very small anyway.
    Changing production time might work but the main problem IMO is that won't mine veldspar in low sec. Collecting resources in low sec space is far more dangerous than in 0.0 or high sec and in terms of profit far behind 0.0.
    You won't or at least you shouldn't try to force people out of high sec by making high sec unworthy. The places you want them to go need to be attractive so they want to go there.

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  11. This stems from the fact that it's difficult to put a price on having CONCORD around, but the woeful state of lowsec implies that the price is too low.

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  12. I'd like to see a licence fee added to manufacturing of ships which is adjusted on a daily/weekly basis based on production numbers. If 50% of all Battlecruisers made are Drakes and 30 % are Hurricanes their licencing costs rise while others remain the same or fall. Repeat until Drakes are 150 million and you may see some diversity in ships flown.

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  13. I agree with the Poster above me, BUT manufacturing should be better under player control,; leave the manufacturing/research slots as they currently are in the NPC stations, but massively buff those on POS'es (number of slots, yields, time) and maybe add unique functionality to POS's for manufacturing/research. Make it so that serious manufacturers and researchers should only really have the option if using POS's, leave the NPC slots for newer players and the occasional manufacturer/researcher. Also have the POS benifits scale with Sec Status i.e Low Sec is better than High Sec, 0.0 better than Low Sec. Oh and High MinorFreak!

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  14. Good analysis, and before really commenting, I'd like to point out some technical errors: Sales tax is 0.75% if you have Accounting skill at V, 0.9% if 4. You forgot broker fees, when you set up a sell order you have to pay that too. Now that varies based on corporation and faction standing, unless you put in some serious effort it's around 0.4%. So the "taxes" are rather 1.1-1.4% than 0.5. My tax+broker is 0.98% and I put some serious effort in it. I mean I even undocked and did SECURITY missions.

    You are right that to make effect with manufacturing fees, it should be increased 100x. However refining rates are much more interesting as they affect mineral prices. You buy ore and refine it with 100% efficiency with little effort. Decrease the base refinery power to 35% like in POS (from 50% highsec) and you instantly lose 15% of your minerals (which is nearly equal to 15% of the total price). There can be serious difference between those who put in some extra effort to refine and those who didn't (Refinery efficiency 5, Ore processing 5, RX-804 implant)

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    1. CCP is only talking about adjusting taxes, so that's the only thing I intended to talk about. The reference to broker fees was included in error.

      You're right that the minimum tax is 0.75%. I'll make that correction.

      Delete
  15. "Clearly, making high-sec manufacturing more expensive is not going to have any impact whatsoever on market prices in EVE"

    Almost true. True for the case you provide as an example, but there are some items that have low value and long manufacture time which would be greatly affected by build cost changes. An obvious example being T2 ammo. It takes about 12 days to build T2 ammo with the same sale price as your hurricane, which takes under 3 hours to build. A build time ratio of almost 100. I have tried building ammo in nulsec stations with high buildcosts. I soon stopped and just imported from hisec...

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    1. What I want answered.... what I will continue to want answered is WHY does anoyone give a fat rats ass how other people play EVE? Why is being a carebear in a SANDBOX game that has carebear content, such a problem??

      Why??? You never hear anyone who is considered a 'carebear' cryin that there are too many people taking too much risk by staying in low and null...

      EVE has a facinating economy that in and of itself has become PvE content. Cool... like missionbears, and incursionbears and FW'ers why is it such a big problem for so many that there are players who prefer to spend thier game time playing with the amazing economy in EVE?

      Why is this such a big damn deal???

      Delete
    2. Most manufacturing corps run those longer manufacturing builds in parallel, which negates the issue - and is why there is no shortage of T2 ammo in high sec.

      Simply put, the risk of losing one or more runs by getting ganked leaving a low sec NPC station, or losing a POS in null sec, isn't worth any savings in manufacturing time/cost. High sec manufacturing is almost 100% risk-free, and that is the reason why most manufacturing is done there.

      Nuking high sec manufacturing would just raise the cost of manufactured goods across the board, which would have a much greater negative impact on low sec and null sec, where ships, modules & rigs are lost at much higher rate than in high sec.

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    3. In reply to TurAmarth ElRandir.

      Two reasons, first, because they want easy targets so they can feel like they are L33T PvP beasts while passing their killboards with people that aren't all that good at shooting back.

      Second, because people tend not to like or respect those that are different than them and who do things that they don't understand.

      Delete
  16. Considering leaving high-sec? I'm going!

    But I'm not leaving high-sec because of the station issue. I think CCP Yttrbium's post was just another indication that high-sec is going to get nerfed and I want to get out before I get drowned by the tears. The key words for me in Yttrbium's statement was "Indeed we do." Everything else was just theory-crafting and details to be determined later.

    I figure that the station nerf won't come until spring at the earliest and probably not until CSM 8 is in office next winter. Plenty of time to move out. But why wait and get aggravated when I can move to a place that hopefully will get some love?

    Oh, and did I mention I'm having fun? Hopefully no one will start trying to teach people how to fit Thrashers.

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