Maximize your profit, not your margins

I always see a lot of people complain on reddit or various wow forums about people who undercut them by large amounts. I think this attitude is mostly based on people who have the wrong goals when trying to make gold. These people care more about their profit margin, than their total profit.

Profit margin or return on investment is not a very important metric in wow. Primarily because the majority of gold-making methods have extremely high margins relative to real world investments. Getting a 10% return on investment within a week by crafting something is pretty much unheard of in real life.

One of the major reasons for Return on Investment is because capital is generally a limiting factor in the real world, so getting the most profit per money spent is important. The main purpose of RoI and margins is to compare competing investment opportunities in a world where capital is scarce. In wow you will generally start generating a large pile of gold that is just lying around quite fast.

A much better measure of gold-making is total profit.

Profit margin times sales. 

This is what you should be maximizing.

And if people undercut you from 50% profit margin to 20% you are still making large profits.

More importantly a lower price will increase the number of sales. This is true for all items sold on the Auction House as literally none of them are required to play the game. They all add some form of power or convenience, but they are not required and they can be obtained by playing the game. Every player will have a level where an item becomes too expensive for them to bother buying it. And this means that as you lower the price of something, more players will be willing to buy it.

I found this to be very true  when i dumped my glyphs before Legion release. I had a ton of inventory of glyphs that were gonna be removed in the pre-patch. So i dumped their price completely, and the number of sales skyrocketed. I managed to move most of my inventory at an acceptable loss.

In total this means that not only should you not care if people undercut you by large amounts, but you should probably consider doing it yourself. The ONLY scenario where only 1c undercuts make sense is if you repost so often that you are almost always cheapest. The amount of people that will be undercutting you in any given timeframe does not change much by you undercutting by larger amounts, but the probability of someone actually buying out all the people that undercut you before your auction is finished will increase.

If you post seldom, this means you should do large undercuts because it ensures a higher turnover.

The optimal price is where your inventory stays roughly the same given your crafting and posting patterns. If you are accumulating inventory, you should slash your prices to increase sales. If you are running out of inventory consider raising them to increase your margins.

 

 

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