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The Economist ~ Notes on margins & returns

Day 1,981, 11:17 by Iain Keers


Dear friends,


Today I’m writing about an altogether less serious topic than the last article. I get asked perhaps three or four times a week a question, or at least variations on the same question. “How do I get rich?”, or “how do I invest this money I have accumulated?” The truth is that there is never a simple or uniform answer to these questions, and for this reason my responses are usually frustratingly vague for the young players who ask. In my lifetime I’ve built two fortunes, the first in V1 and the second in V2. Technically the second one grew out of the same trunk as jamesw’s since we were business partners. I’m not going to go into exact measures of worth here, but needless to say there aren’t many countries with as much money anymore.


The basis of all of this comes from two things; patience and spreadsheets. Patience is the greatest virtue any future financial player can hope to have, because as sure as rain falls from the sky and Estonia fights Finland, you will get screwed over in the markets. I have forgotten how many setbacks I’ve had, how many losses. The important thing to remember is that you don’t take risks without making mistakes or just losing out on an unpredictable event. To illustrate this, let me give you a couple of examples.


Firstly of bad luck. In this case there are many, but I’ll give you a clear one. When Q7 was introduced I had about 15,000 Q6 guns on my profile. Their value halved overnight. I can’t remember exact values, but I think that I lost about a hundred thousand currency on that one. Obviously the money was worth less then, but a loss is a loss. Actually I still have around ten thousand of them- I just couldn’t bring myself to cut my loss though I should have sold them long since.


Good luck events are few and far between. When V2 came along we had a lot of price fluctuations. Currency was still unlinked, so prices were in local currency which had to be chopped and changed. It was lucky that at the time I had 200 orgs under my control and a fairly large supply of gold. Some of the houses I bought in that time for around 2 gold sold for 20 each, and some of the weapons I bought for 0.2g sold for 0.5-1 each. Between myself and james we made a colossal amount of money for the time which really was the catalyst for me switching from a mostly MM based commercial base to a mostly company based one.


Anyway- enough history. The point is that by being patient and accepting you’ll make mistakes you get somewhere. Nobody gets rich in a week, month or even a year. True wealth comes from being in the right place at the right time, with the right equipment and the right contacts to make it happen. To get that you just need to patiently invest and reinvest.



Matzanesia was the perfect example of patience


Which brings me neatly to my second great virtue- spreadsheets. Some of you who use companies probably remember the old company management websites that used to kick round in V1. They calculated everything for you, but basically they were just fancy looking spreadsheets. I think I spend more time on Google Drive than on eRepublik to be honest, and the reason for that is simple: margins and returns. Those two very basic financial indicators are the basis of your future career as the richest man/woman in the world (trust me).


Put simply, a margin is the difference between your outgoing expenditure and your incoming revenue. A return is how much profit a company will bring in for you, and more specifically a return on investment (RoI) is how long it takes for you to make the money back which you invested in buying the company. There are a few quick points I want to make before I go into more detail on these two.


1. Buying a company is not like buying a gold pack or a gun or food or whatever. You do not lose money when you buy a company. You invest it. A company costs 8500cc, ergo it is worth 8500cc. If you turn 8500 in capital into 8500 in assets, it is still 8500, and that price is fixed by the game. At worst, you can get rid of it and get half your money back. The difference is that 8500 in money form is nothing more than a temptation to spend, whereas 8500 in asset form makes money each day.

2. Everything is relative. If your company makes 10cc a day it might not seem like much. If you have 100 of them, you make 1000cc a day. That’s a lot. The only difference is time and patience. These days currency is worth a lot more, so really you shouldn’t be buying currency based companies, but the point stands.


Back now to margins. Margins are as I said the difference between income and output. It can be taken in two ways. Firstly on an isolated level, a manufacturing company generally does hire workers and does generally use a great deal of WRM. Whether you make it yourself or buy it from the market is irrelevent. You are using WRM, and it has intrinsic value itself. So the margin is the difference between the sell price of the WRM used to make a gun, added to the labour cost, and the actual amount you are selling the gun for.

P - (RM + L) = M

Price [after tax] - (Raw Material + Labour) = Margin


Simple as that. So if for example you are currently selling Q7 on the market in Romania it would be:

5.795 - (6 + 0.7142...) = -0.92 (rounded)

So basically by selling on the market at the minute you are losing 0.92 currency for every gun you sell. If you make the guns yourself (no workers), you only lose about 0.2cc per gun. If you make the WRM yourself, then you should sell it directly. If you’re buying it from someone else, stop. You’re losing about half a gold a day. This is spreadsheets; this is simple stuff.


So why do people sell at these prices? Sometimes it’s from ignorance, or just lack of spreadsheets. But surely anyone with half a brain can see that 200 * 0.03 = 6, even if the complexity of taxes and labour costs eludes them. The truth is, if you make your own WRM you will know it’s a lot easier to sell Q7 guns than WRM, precisely because anyone buying WRM is making a loss. So the true value of WRM is actually lower, though not so low as to fall below 0.03. People without vast amounts of storage or the Q7 companies needed to convert their WRM often sell their WRM directly to Q7 owners at a reduced price- say 0.025 cc by private arrangement. If you plug that amount into the formula, it looks a little better.


Secondly, on a holistic level, margins are the differences between your total income and your total expenditure. Ultimately the goal of every player is to get to the point where they can max train, tank occasionally and feel rich without having to spend real money. You can achieve this with companies even now, though it requires sacrifice as well as patience. If you spend all your tiny income on fighting and training to begin with, you’re going to end up a pauper your whole life. I’m not telling you what decisions to make, but if you want to be rich, remember to calculate not just your business outcomes but all outcomes. That tank you’re using to fight with is worth money. You’re not firing bullets at the enemy, you’re firing currency at them. And you don’t get rich by spending money.





On to returns. Returns are the amount of money returned from your investment, as I said. So if you’re making 10cc a day profit in a company, that is your return. Your return on investment is the value of the company divided by this amount. So if you bought a saltpetre mine for 8500cc, and made 10cc a day, it would return it’s investment in 850 days. At the minute a rubber factory returns it’s investment in about 550 days if you have perfect bonuses the whole time. But as I said above, this isn’t really “getting your money back”, since your money still exists in the company. It’s more like “doubling your money”.


The secret of returns is that growth feeds growth. Each of us play a game where we’re rewarded monetarily constantly in the form of medals, XP rankups and so on. If you buy gold you get cash that way too. The game admins obviously want you to spend gold on special items to focus on the military module. Anyone looking at my profile will see they’ve been mostly unsuccessful convincing me of that. I’m not telling all of you that you must do this, I’m telling you this is what I would do. You take all of that gold, especially the glut of it you get at the beginning of the game when they’re trying to hook you in, and you invest it safely where it can’t be spent. And you keep doing that. Not for the first week or month, but for the first year. It’s a massive investment, a massive specialisation. But after that year you are pretty much free to do as you like. I know people a year old who have done just that and are worth more than a million currency already.


When you put your rate of return into your spreadsheet you’ll find what seems like tiny numbers. But the truth is that for the price of a few extra clicks a day, your money breeds. It’s as simple as that. I tend to click around 230-240 times a day, depending on how lazy I am (usually I sleep at least six hours) and level up every couple of weeks or so. All those 1-2-3-4 percent returns add up once they reach those sort of numbers. When I was building up to this (most of them are obviously raw materials companies) I had a spreadsheet which calculated how long it would take to reach my goal. Even with favourable markets and a sound base already, it took me about five months from start to finish. Patience and spreadsheets!


If you want to talk to me about the article, please do drop me a query or PM ingame. I’m always happy to moan about the economy module with a fellow player. But make sure you set up your spreadsheet first! Good hunting


Iain




Ps. If you want to share/reprint/translate this, feel free. All my articles are open source.

PPs. Hi Romania!
 

Comments

Magic
Magic Day 1,981, 11:18

I don't even need to read this article and I know it's good.

Magic
Magic Day 1,981, 11:24

Aaand I was right.

Prince Sheogorath
Prince Sheogorath Day 1,981, 11:21

The game is now in a state where the only real way to earn a significant wealth is to do the money making in real life.

What got me glued on this game was when I set myself my first goal of owning a company, then upgrading that company etc. I miss the old economy module!

Good article also!

elbandido
elbandido Day 1,981, 11:33

Welcome Iain Keers \o/

...time is money

HumbleBe
HumbleBe Day 1,981, 11:39

Cheers for bringing me back to semester one xD

Sei Kaon
Sei Kaon Day 1,981, 11:46

V
Bravo!

Emergy Maxfell
Emergy Maxfell Day 1,981, 11:47

Voted. Can't tell you the number of times I've guessed wrong on things like this.

Most recently building up 3,000 workers @ 30cc a pop! (=

Iain Keers
Iain Keers Day 1,981, 12:07

Ditto, but sometimes you just have to swallow and shrug it off

jedimindtrick
jedimindtrick Day 1,981, 11:53

V

Spygon
Spygon Day 1,981, 12:05

But the more money you spend training and fighting you get more SS medals,ranks to get more SS medals and true patriot medals that equals more gold.

Iain Keers
Iain Keers Day 1,981, 12:07

No chance that deal ever equals out. Sure if you enjoy fighting there are ways to cut your losses, but nobody makes a profit fighting. Not unless they go merc.

Spygon
Spygon Day 1,981, 12:13

Your properly right as i use Dark wolf Industries as a war chest these days so this is where a lot of my funds come from when i need to splash some money

biiis
biiis Day 1,982, 00:44

hm,
math is pretty simple here.
if you have all 4 training grounds on max, your daily gain is 91 STR. in a period of 30 days that is 2750 STR (+5 bonus), which gives you 55 gold + 5 gold for the HW.
so if you buy the -90% training contract, youre only spending aprox 2 gold/30 days.
the base cost is over 220 gold + 53 gold for the contract, but if you managed that, you have a guarantee to a max STR gain.

as for fighting its not that simple. TP medals are quick in the beginning, but when you get to the 100kk diff, it slows down (depending on STR and rank), while you still have to use aprox 20 Q7 wpns a day.

so training is basically a no brainer, upgrade as fast as you can. there should be a chart somewhere, i think that with a STR gain of 80/day youre only losing around 7 gold/30 days.

Elle Roslin
Elle Roslin Day 1,981, 12:09

You are my favourite econ-dork Keers!

LOVE YOU

Spygon
Spygon Day 1,981, 12:14

I need to get a calculator

DoDrew
DoDrew Day 1,981, 12:11

Welcome to Romania ! o/

Nice article .

Nohjis
Nohjis Day 1,981, 12:12

Valuing WRM at 0.03 is a bad idea, for those with the time and will to do it, it's possible to buy hundreds of thousands of WRM at 0.02 every single day.

Other then that, fully agree with the spreadsheet principle, even if personally I don't see much of a point in accumulating wealth beyond a certain point.

Iain Keers
Iain Keers Day 1,981, 12:15

Money is what drives this game, and the more you have, the more you can afford to spend : P

vl125
vl125 Day 1,981, 12:14

Wise words, wise words...

vl125
vl125 Day 1,981, 12:36

Ive done some Math and i´m producing 458cc a day, that equals 1,8-2g a day, but i´m still using all trainingcnetres, so its only 0,8g on the +side....i´m not very confident...

vl125
vl125 Day 1,981, 12:40

oh god why dii i do the math...

FragUK
FragUK Day 1,981, 12:14

[ But make sure you set up your spreadsheet first! ]

Ide like to know how to set up a spreadsheet to do it., o7

Nohjis
Nohjis Day 1,981, 12:20

drive.google.com Other then that it's basic math

nW0lf
nW0lf Day 1,981, 12:23

Very well said (written?).

By the way, I'd love to read your thoughts about investing in food raw material - since the wrm market is clearly supersaturated and in some markets frm can sell for 0.04 (that's twice what one would get from wrm if in a hurry or lack of storage space).

biiis
biiis Day 1,982, 00:49

IMHO
there are only 2 ways to sell FRM or WRM at that price. n00bs + 2 clickers or if the bot is active.

also take in consideration license cost (if its not your CS country) and import tax. further how much FRM is being sold at that price (if any) and please keep in mind, that anyone with the CS of that country can simply buy it somewhere else and offer it on the market.

global market and global currency have caused the prices to equal more or less out. while i believe that occasional profits can be made with the price diff, it doesnt add up in the long run.

Alina V
Alina V Day 1,981, 12:57

Hi, Iain!
Wait... eRomania must be on it's way to perfect bonuses if you moved in. : P

GregoryG
GregoryG Day 1,981, 13:16

SLIP

klop123
klop123 Day 1,981, 13:27

Great article, do you mind if it is reposted in eCanada, to help players a little?

Iain Keers
Iain Keers Day 1,981, 14:50

Like I said, all my stuff is freely available to re-post

aladinus
aladinus Day 1,981, 14:11

mda de unul adus de elbandido care scrie in engleza era nevoie...astept cu interes un sarb , un polac samd...

Colonel Jack ONeal
Colonel Jack ONeal Day 1,981, 15:02

)))) el e fondatorul voters club(sau egov,nu mai stiu).

Kuekuatsu
Kuekuatsu Day 1,981, 14:58

very interesting o/

cc1432
cc1432 Day 1,981, 15:12

still some1 is buying from time to time, daily amost, my WRM at 0.03... who would that be .... ?

Iain Keers
Iain Keers Day 1,981, 15:26

Aliens!

cc1432
cc1432 Day 1,981, 15:52

well the bot is no longer present i think and hope and the gold price might be the best indicator for this.... on the other hand i havent check if there are spikes in the price of lower q weapons which might make them worth producing. But sometimes due to inventory constraints i am forced to sell at 0.02

biiis
biiis Day 1,982, 00:55

@cc1432
actually the bot is active on the MM, its buying CC to lower the price.

also IMHO the bot is active on the markets, not all the time, but now and then to level some prices. ive seen over 8k Q7 wpns being bought in a couple of mins, and 10 mins after that, another 12k. without any serious battles going on

Jussi SD Jernkuuk
Jussi SD Jernkuuk Day 1,981, 15:15

"But as I said above, this isn’t really “getting your money back”, since your money still exists in the company. It’s more like “doubling your money”."

Yes, the payback time should be calculated from the difference between how much you invest and how much you get back when you downgrade and dissolve a company. It's very much unlike the real world where tools, machinery and such lose value quickly and need maintenance.

Iain Keers
Iain Keers Day 1,981, 15:27

How many people make a company to dissolve it? I mean the only reasonable example I can think of is dissolving saltpetre mines to make rubber ones, which does make sense right now financially. I never dissolve companies

Jussi SD Jernkuuk
Jussi SD Jernkuuk Day 1,981, 20:58

It's really irrelevant if you ever intend to dissolve a company or not. I meant that once you have earned the diffence, your investment is 100% safe and you are making profit. Unless they change something, of course.

biiis
biiis Day 1,982, 01:04

IMHO its very important to calculate in the dissolving of a company.

personal example.

a friend and me each had a little over 100 gold. last week the -44% bonus on companies was active.
he decide to build 3 Q5 WRM, while i went with a Q4 WPN factory.
we both spent aprox the same, but if he dissolves, he loses 50%, while i only lose 10%.
as for the profits:
he is making a max of 45 CC/day (WRM price at 0,03)
im making a minimum of 12 CC/day (without workers and WRM price at 0,03) - realistically im making around 40 CC/day (with workers and WRM at 0,0225).

why am i writting this well its simple, if sth happens on the market, i only have to make up for the 10 gold diff, while he has to make a profit of around 50 gold. this gives me an advantage in changing my companies to whats the most apropriate considering the market

biaxident
biaxident Day 1,981, 15:28

nicely done, sir.

vladb
vladb Day 1,981, 22:53

Welcome to eRomania !

googoodoll
googoodoll Day 1,982, 00:03

I saw a turn in your trajectory about a few month ago, maybe a year, didn't pay much attention, but seemed odd at the time.
Now i get it.

biiis
biiis Day 1,982, 00:11

like always, a great article

now my personal input:
no manager work

WRM - dont value it at 0,03, i admit that it is possible to sell it at that price, but it takes forever and the ammount is relatively small.
WRM should be valued somewhere between 0,02 and 0,023 - this includes moving costs and also second hand sellers (WRM price on market sold at 0,05 and then the diff is returned via donation).

so with that in mind a Q7 wpn costs a max of 4,6 CC in WRM + player wages. with a 100% bonus in wpns that means, that your max cost for a Q7 wpns are at 5,3 CC. with lower % bonuses the cost increases slightly, but not by much, since player wages go down.

IMHO Q7 wpn on the market have a basic cost of 5,3 CC (aprox) and everything above that is pure profit.

Q7: (4 - 4,6)WRM + (0,7)salary = 4,7- 5,3CC - 10 workers
Q6: 1,2 - 1,44 + 0,7 = 1,9 - 2,14 - 10 workers
Q5: 1 - 1,15 + 0,7 = 1,7 - 1,85 - 10 workers
Q4: 0,8 - 0,92 + 0,7 = 1,5 - 1,62 - 5 workers
Q3: 0,6 - 0,69 + 0,7 = 1,3 - 1,39 - 3 workers

thats your base price, so there are still some profits to be made, but theyre not really big

moving on to manager work:
any ammount of WRM that is produced can either be sold on the market or put into production (provided you have companies).
here you have basically 2 decisions to make. either try and sell the WRM on the market at 0,03 or make wpns from that WRM. if you manage to sell it at 0,03 youre making a lot of profit, so if that happens regularly and you can afford to store all of that WRM, then this is what you should be doing.

IMHO and what im doing.
i buy WRM at a max of 0,023, i also produce 12.000 WRM every day. i put every unit of WRM into wpn production. the reason is simple, with limited storage (110k) and with about 100k usable im forced to use WRM, since my biggest profit margin on WRM is 1000 CC/day. dont know what im talking about?

biiis
biiis Day 1,982, 00:19

explanation:
i buy WRM at 0,025 CC (the diff is donated). daily i use 176k WRM - 12k manager work + 164k bought.
this gives me the following price of for Q7 wpns. - 5,2 CC/piece.
i now sell this on the market, for aprox 5,68 (day 1981), for a profit of 0,48 CC/unit.
i admit its not much, but its something. this gives me a total daily income of aprox 600 CC (i use 20 wpns myself).
now here comes the trick every day i buy another 100k WRM at a price of 0,025 and put it on the market at 0,03. i will be honest in the past 7 days, i sold around 50k this way, giving me extra profit of 250 CC, thats a little over 30 CC/day.


so enough bragging
if you can sell WRM regularly at a price of 0,03 - DO IT
if you can buy WRM at a price of 0,02 - DO IT
if you can buy/produce enough WRM to use in your companies, here it gets tricky, you have to calculate which is more profitable. please keep in mind, that you are limited by your storage and also the ammount of WRM being bought on the market at 0,03. i believe that my example (bragging) is the perfect way to go, especially since i dont have to hunt WRM around the world markets (very time consuming).


thats it

alpho
alpho Day 1,982, 02:22

Who let you in?

cc1432
cc1432 Day 1,982, 13:44

who let avie in ? )

Grainne Ni Mhaille
Grainne Ni Mhaille Day 1,983, 03:00

Read as far as "patience and spreadsheets", zoned out....
*forever po*

 
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