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TruthScape Skill Secrets - General Guide - The Economics of RuneScape Skills and Skill Training Breaking Down Multiple-Step Skills to Determine Value Added

A map won’t help you get to your destination if you have no idea where you are. Similarly, we can’t really learn about how to make money with skills until we understand what making money really means. And believe me, after several years of listening to RuneScape players talk about this subject, I know too well that most of the folks who think they understand moneymaking really do not.

So, I am going to begin here with a brief accounting lesson, which will introduce some essential terms and help you understand what the basic issues are in figuring out what making money means. Don’t worry—this is not complicated at all, and not only will these concepts help you with RuneScape, they are the same ones used in real world business as well.

Most activities are concerned with taking certain inputs and processing them to produce outputs. Simply put, an input is anything that goes into the process and is consumed by it to create a product. An output is the result of the activity, such as a finished good. And processing is what transforms the inputs into outputs. These three notions underlie most businesses in real life, and the majority of skills and other activities within RuneScape.

To take a simple example, suppose a boy named Michael decided to open a lemonade stand on his street. His inputs will be the materials he needs to make his beverages: lemons, sugar, water and ice. His output will be ready-to-serve lemonade. And the processing will involve squeezing the lemons, mixing lemon juice and sugar into the ice water and pouring it into cups.

The moneymaking ability can be judged by comparing the value of the output to that of the input. If the value of the output is higher than the value of the input, the process makes money; the difference is called profit. If the value of the output is lower than the value of the input, the process loses money, and that of course is called a loss.

The value of the inputs to a process is often called cost or expenses, and the value of the output is revenue or income. This leads to this simple formula:

Profit or Loss = Revenue (Income) - Expenses (Cost)

Figuring out profit and loss requires that we first determine what the value of the revenue and expenses are. To take the lemonade example again, suppose lemons cost 75 cents each, sugar is $1 a pound, ice costs 30 cents a pound and water is $1.50 a gallon. Michael’s secret lemonade recipe combines the juice of two lemons, half a pound of sugar, three pounds of ice and two gallons of water. He mixes it and this produces enough lemonade for 40 servings. This means the cost per serving is given by this equation:

Cost per lemonade serving = (Cost of two lemons + cost of half a pound of sugar + cost of three pounds of ice + cost of two gallons of water) / 40

Cost per lemonade serving = (2*0.75 + 0.5*1 + 3*0.30 + 2*1.50) / 40 = 0.1475

So, the cost of each serving of lemonade is 14.75 cents. But wait—Michael has other expenses. He also has to buy the cups to serve the lemonade in, and his customers need napkins. If these add a further 2 cents per cup, the total cost per serving is 16.75 cents.

If Michael sells his lemonade for 25 cents a cup, then he makes (25-16.75) or 8.25 cents per cup of profit. But if he sells lemonade for 15 cents each, then he loses 1.75 cents a cup.

Some processes have no inputs, only outputs; these are rare in the real world, but quite common in RuneScape. In this situation, since there are no costs, all of the revenue from selling the output is profit. Conversely, there are processes that have inputs but no outputs. Here, the activity will only lose an amount of money equal to its costs; it is a pure loss process.

I call skills that create outputs without inputs resource production skills; in contrast, those that use up inputs without producing substantial output are consumption skills.

TruthScape Skill Secrets - General Guide - The Economics of RuneScape Skills and Skill Training Breaking Down Multiple-Step Skills to Determine Value Added