Monday, January 7, 2013

Confessions of an Industrialist: I don't want to sell to you

Allow me a brief confession.  I don't want to sell you discounted product at any volume.  In nearly every product I produce, the current Jita market volume cashes me out plenty fast at the profits I've projected.  I don't care if we are friends, or if we are participating in different markets, the simple truth is I have no reason to take the hit and allow you to profit more.

Now, if you're looking for direct sales at Jita prices in volumes Jita just cannot support (Mobile Large Warp Disruptors I/II, T2 frigs in volumes of 20x or 50x), then we can talk.  You have a desire to pay at (or slightly above) Jita prices, and I have a means to process a lot of product.  Otherwise, there is zero incentive for me to lose while you win.

Personally, I've picked my products to be quickly liquidated and high margin, so I've done everything in my power to avoid direct sales.  Other industrialists might have different priorities, so let me outline how to find a good deal.

Where Are the Chokepoints?

If you want to nail down a direct deal, and make it worth doing business, you need to eliminate a chokepoint for me.  There are several places that direct sales make sense, but it has to be a win for both parties to be considered a prudent deal.  Instead of focusing directly on price, think about where Jita fails.

Volume Mismatch

There are products that are worth having in high volume, but there is some restriction getting in the way.  Capitals, bubbles, T2 frigates, T2 ammo, these all have a need that greatly outstrips what any one independent producer can provide.  As such, the volumes on the market tend to be anemic, and it can be very difficult to get very large volumes at a decent price.  Though us producers sure thank you when you reset the price trying.

0.01 ISK Game

Many producers may not want to play the 0.01 ISK game.  There are plenty of products that may take more time to monetize on than a producer cares to deal with.  Again, this ties back to volume.  A good example here is interdiction modules (webs, scrams, disruptors).  Sales volume is obviously high, and production volume is suitably capped, but there are a lot of people participating in that market.  It may be a lot of trouble to move larger volumes.  

Long Term Supply

Agreeing to a contract week over week for a product at a decent price significantly simplifies an industrialist's work load.  Though the price might not be agreeable to selling in Jita, getting a guarenteed supply to ship to secondary hubs is a win-win for both parties.  The buyer doesn't have to wrestle with buy contracts, the seller doesn't have to deal with sell contracts (or fees).  

High Fee Items

When orders get expensive, more ISK goes into fees like taxes and broker fees.  This is very commonly a killer in capital production.  There may be room to bargain on items that cost billions because the cost of business is just unacceptable.  By giving a quick cash out, and eliminating broker fees by direct bargaining, there can be considerable deals to be made.

Striking a Deal

There was an excellent post on this subject on, Crash Course: Effective Negotiation.  I would suggest reading that before pursuing my advice.

The best deals are ones where everyone gets what they want.  As soon as someone in the deal feels screwed, the relationship is doomed.  And the market is a venue for partnerships and enemies as much as any battlefield.  The best bargains will take elements from all the above and find a happy medium where everyone profits.  

Some quick hints that will help make bargaining easier:
  • Don't expect to beat Jita
    • If you really want the best price, work at buy orders.  Jita is the gold standard and though some isk can be made getting a margin priced supply, don't expect to get items cheaper than Jita-buy
  • Don't screw your suppliers
    • It's pretty awful to expect to sell a supplier's product against the same supplier.  Work with your partners to avoid overlap
  • Volume is king
    • Manufacturers can often outstrip demand (often by accident).  If you know where to sink that volume, or have the patience to see an investment through, this can be where deals can be made
  • Push Button Receive Bacon
    • Many industrialists just want their ISK and they want it now.  Providing an outlet for their products that quickly turns around their efforts week over week can be a beneficial partnership
Of course, I'm supply-side oriented, so take my advice with a grain of salt.  Personally, there are very few products I would consider for direct sales only because it's an extra step to make less money.  I am also a total pain to negotiate with because I, like many Americans, completely  lack the skills or tolerance to barter.  

Though, if you have a need for 50 Mobile Large Warp Disruptors at any regular interval, drop me a line.  


MoxNix said...

Speaking as a trader (not a consumer) if a producer can't beat Jita buy orders then there aren't many reasons to deal with him and it's going to be nearly impossible to come to a long term mutually beneficial agreement.

If a producer wants volume deals (especially in a long term arrangement) for quick cashouts and guaranteed profits, then he should be willing to discount a little. Why should I take all the risk while the producer gets guaranteed profits?

There needs to be something in it for me too, like a better price so I can cover listing fees and sell it at a profit without sitting on it for weeks or months waiting for the bots to get tired of undercutting before it finally sells.

Delivery options besides Jita could work too. I might be willing to pay Jita price if the producer can deliver where I need it, when I need it and in the volume I require. But if have to wait a week for him to make it and guarantee him a great price before he even starts the job that's probably not going to work for me.

John Purcell said...

It's a problem from both sides.

As a trader: why should I pay over Jita (or Jita + RF) when supply is functionally infinite for my needs?

As a builder: why should I sell for less than Jita (or Jita - RF) when demand is functionally infinite for my needs?

The only place it makes sense to wheel-and-deal directly is either with raw material deals, or high-skill labor (caps). Otherwise, the value-add comes from logistics/freight moreso than real production.

There are still corners where it makes sense, and it where the logistics break down. Specifically, frontier supply of heavy equipment like hulls may make more sense to work through producers than spend the logistical horsepower to move the built hulls.

MoxNix said...
This comment has been removed by the author.
MoxNix said...

Oh, almost forgot to add.

From past negotiations I've found if the buyer is basing his price on Jita prices for materials with a markup of 10-15% that's almost certainly going to push his price well over the Jita buy order price and probably over low end of the sell price cycle too.

John Purcell said...

I agree there are a lot of really bad industrialists out there. Personally, my rule on "deals" has been splitting the difference between jita-buy/jita-sell. I've also cut deals where a direct sale has saved me significantly in taxes and fees.

The rule I set out for most people who ask advice on building: Use Jita as "gold standard". Even if you can get minerals at a mark down, or sell to a spoke hub for a markup, you should always base your calculations off Jita. If your sale quote goes over Jita, then either you're doing something wrong, or sending a "fuck off, dude" to shut down the request.

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