Why do people start with industries?

[ytr191]

I have tried the industry approach to railroad tycoon. The truth is, that it works. Lets say that you have two cities with a lot of natural resources and no industry.

Omaha: 5 grain farms
Samatha: 4 sheep farms, and a cotton plantation

Since a textile mill only costs around $1,200K and earns around $200k a year after expenses, it can be a very good way to support building a railroad in a hostile working environment.

[Alfed E Neumann]

Nothing new here, just trying to squeeze the thread's information into a few short paragraphs.

The problem with small railroads (connecting only two or three cities) is that while they may create a decent revenue at first, it's bound to plummet quickly, as freight prices at all stations quickly become near-equal. In their second or third year, profits become meager to nonexistent.

Large railway systems perform much better. In part because there's probably a wider assortment of goods to carry around, in part because of less overhead (a large station costs $200k regardless of wether it serves one train or ten). But mostly it's because of express revenue: the more destinations you have, the more passengers and mail you will attract. Small railroads need to ship the cargo that is, large systems create their own express freight. It's really that simple.

So, how do you get a large system without building a small one first? Don't start with a railroad, start with industries. A return on investment of 25% or better is pretty normal in that stage (you only use the very best sites fo your first industries, don't you?). Hit fast forward, invest and reinvest for a few years. By the time the economy improves, your stock will already have split a few times and you will have a pretty good credit rating. You can now issue bonds for lots of cheap money (and even more bonds for not-so-cheap money) and connect six or ten or even more cities, all in one go.

[EPH]

I always look at the scenario and the requirements as well as the expected rate of return on my investment. If I have enough starting money to build a profitable railroad from the start, then I do. If I think I can make a higher return from investing in industries, I do that. My perception is that early purchase of industry provides steady income which helps bring down those interest rates - then I plunge and build a profitable rail network. (Alfred E Neumann just put this very well; see the previous post).

I'd be surprised if an industrial empire can be more profitable than a mature rail network, but if industry counts for 1/3 of my total income I am well satisfied. Besides, extensive industry multiplies my transport profits: I make money hauling coal and iron to the steel mill, rubber to the tire plant, those products to the auto or weapons factory and then the finished product too. Can't beat them apples!

From history we can see that railroad tycoons were often industrial tycoons as well: the Reading Railroad in its prime was considered the most profitable company in the world largely because of its extensive holdings in coal mines. Many mining, manufacturing and forestry products companies were spawned by railroads usually from their land-grant acreage.

But the real reason to industrialize is PROFIT. As was said above, if you don't want to spend your money on industries early on, then don't. Feel free to tell me that you think my strategy is sub-optimal. But a lot of people disagree with you, myself among them. Personally I love building a massive industrial economy, linking my farms, mines and factories together with profitable railroads into a financial empire worthy of Scrooge McDuck. Seeing the potential for an industry and capitalizing on it makes me very, very happy. $$$$$

[Alfed E Neumann]

[quote="EPH"]I'd be surprised if an industrial empire can be more profitable than a mature rail network, [/quote]

Me too.
*Some* industries yield insane profits. This, of course, are the ones you buy or build first. But if you stick with industries, you'll eventually have to settle with more ordinary revenues.

I've seen 60% return on investment at times, but that's rare. Usually, I consider 40% to be excellent and 20% is quite alright. I never bothered to figure out a precise ROI for my railroads, but have a gut feeling that it's better than 25%, possibly even 40%.

[Gumboots]

I'd suggest taking a good look at your ledger. If you are playing on Expert level, your fuel and maintenance costs for your trains will often be very close to the amount of revenue they generate.

[low_grade]

Yes, of course, Industry start, and continued development of industry, is the best start, every game, no question. Even if it's just scumming for new dairy farms, sometimes.

Except in those games which don't let you buy industry. I like those games, too.

[Alfed E Neumann]

I'd suggest taking a good look at your ledger. If you are playing on Expert level, your fuel and maintenance costs for your trains will often be very close to the amount of revenue they generate.

Your wish is my command. I just took my current scenario where I had built a 6-city network in January 1907 and expanded it to 9 cities in 1908. I just hit fast forward and waited a few years, noted the numbers, then reloaded the savegame ind did another fast-forward with the smaller network.

Results

Code: Select all

6 cities,  year	   1    2    3
express revenue  470  730  650
freight revenue 1350 1090  880

9 cities,  year	        2    3
express revenue      1340 1170
freight revenue      1470 1340

According to the ledger, the whole railway system, track, stations and trains cost me 6.8 Million for the six-city network and 10 Million for ten cities, giving me a 3rd-year revenue of 22% and 25%, respectively. I might add more data as I get it.

A savegame from the end of my last scenario, the phase where I was basically done and just had to wait a few years until I made enough money to trigger the victory condition, tells me I had between 30-45% ROI -- it fluctuated quite a bit, but the overall trend was upward (maybe just because of more houses being built).

The current scenario is Rhodes Unfinished, the previous one was Germany (both from the campaign). The latter has much larger cities, shorter distances and the relevant part of the map is flat as a pan. In Rhodes, the electric track over more difficult terrain is nearly twice as expensive (8.2 vs 4.2 k$/mile) and I'm using the ugly 2-D-2 rather than a good-looking steam loco.

As to difficulty, I can't remember what I chose at the beginning of the campaign. Probably "normal". Can I look this up somewhere? Anyway, if you want figures for expert difficulty, I suggest you consult your own ledger. Though I suspect even experts might get more than 25% in Germany.

[RulerofRails]

The 2-D-2 is an efficient engine so that should be giving you good numbers to work on. The hardest difficulty available for the campaign is Hard. Sorry I don't know how you could check what difficulty you selected. There is a big difference in the profitability of trains between Normal and Expert.

The most logical reason I know to build industries is to increase the number of loads of processed goods in the game for your railroad to haul. Things like Meat, Clothing, Furniture, and Goods. These all have high base values and the price differentials are greater. Often your trains can drag a load of Meat for example to 5 or more cities as the price in each subsequent one drops to give it a 10k revenue per car to go on to the next one before it is consumed or rots.

The seeded industries usually don't make good use of the raw resources. Often they are a long way from the source of the cargo they demand and this makes up for some of the lag that is experienced at the beginning of a game. If raw resources are operating in red zones they probably will not be producing at full capacity.

[Gumboots]

According to the ledger, the whole railway system, track, stations and trains cost me 6.8 Million for the six-city network and 10 Million for ten cities, giving me a 3rd-year revenue of 22% and 25%, respectively. I might add more data as I get it.

When you say it cost you that much, do you mean it cost you that much to build, or it cost you that much each year to run? Given the numbers quoted, it sounds like build costs.

What I'm referring to is the running costs. These vary according to which difficulty level you select. On Expert level (the hardest for scenarios, but not selectable for campaigns) running costs for your railway escalate to increase the difficulty. They increase to the point where they will often more or less balance out your express and freight revenue if you are using steam trains.

Anyway, if you want figures for expert difficulty, I suggest you consult your own ledger.

I have.

[Alfed E Neumann]

According to the ledger, the whole railway system, track, stations and trains cost me 6.8 Million for the six-city network and 10 Million for ten cities, giving me a 3rd-year revenue of 22% and 25%, respectively. I might add more data as I get it.

When you say it cost you that much, do you mean it cost you that much to build, or it cost you that much each year to run? Given the numbers quoted, it sounds like build costs.

Of course. When talking about Return On Investment, building the railroad in the first place is certainly part of the deal. But, ahem... I took gross revenue for profits. Oops.
OK, ledger reports $390k in operating cost (all maintenance + fuel) for the 10-city Rhodes setup and $880k for Germany, bringing the revenue down by about 5 percentage points in both cases. I'm not quite sure what to do with Overhead and Wages, as these get pooled with industries. In a quick test with nothing but trains, both together amounted to less than station maintenance alone -- I expect the overall impact to be slight.

Anyway, if you want figures for expert difficulty, I suggest you consult your own ledger.

I have.

And?

[Gumboots]

And it costs a bundle.

Here's a shot from one of WSherrick's scenarios on Expert, at a well-devleoped stage of the game. Note that his ones seem to be loaded to give better than average returns on rail haulage. He likes to encourage lotsa trains, but I don't have a lot of saves handy at the moment.

sample_ledger.jpg (109.44 KiB) Viewed 6132 times

Just taking the last year as an example, there's $34,283K revenue from freight and express. Fuel, train maintenance, track maintenance and station maintenance add up to $17,417 or about half of the revenue. This is unsually high for a well-developed company running steam. Usually it'd be lower. Also, like you said it's hard to tell how much of wages and overhead are due to the railway itself, but there's sure to be some. Might bump it up to $20,000K.

None of this accounts for the build cost of the railway, which was also substantial of course. Track, stations and trains in this example had cost $107,000K. So even without accounting for wages and overheads, ROI is about 15%.

OTOH, I am running a fair whack of industry, and arguably some of that would be less profitable without the product being hauled away. It gets complicated to figure out exactly what your rail is earning you, but at least on the harder settings it usually doesn't seem to be spectacular. You could win most scenarios just with industry if they didn't have haulage or connection requirements. Of course, that'd be no fun at all. Gotta have trains.

[Alfed E Neumann]

Just gave it a try and sold all my industries. Overhead went from 2,600k to 1,400k, salaries 64k -> 46k. Presumably the industries' salaries are kept under overhead.

In the years before, I've seen my overhead rise steadily without good reason. I bought no more industries, laid no track... why was overhead increasing? On a whim, I replaced all my 21 locos. Overhead went down by another 300k, train maintenance went from 220k to 150k -- and this with rather reliable 2D2s that were between 5-9 years old. Now riddle me this...

[Gumboots]

RT3 is full of voodoo. When in doubt, sacrifice chickens on the full moon. Works wonders.

IIRC industry wages and overheads are dealt with separately. Your ledger lists industry profits, not industry revenue. AFAICT the wages and overheads for your industries are only ever shown when you view the building details, and they never get as far as your ledger.

I know company overhead and wages are somehow related to the overall size and complexity of the company's holdings. So selling off all your industry would cut both of those, but I don't think they're directly related to the internal wages and overheads of the industry buildings. They're more overall administration costs for your behemoth. As it grows, they grow too (unfortunately).

That's interesting about the drop in track maintenance and company overhead when you update locos. I must try that and see if I can get the same result.

[Gumboots]

Ok, just tried it. Same starting point as the ledger shot above.

Had 76 locos, Near Perfect reliability rating, ranging in age from 1 year to 13 years in a fairly even spread.
Replaced all of them (using with the same model locomotive they already had) at a cost of approx. $16.5 million for the lot.

Loads hauled in the year before replacement were 1,480. Loads hauled in the year after replacement were 1,580. Only about 7% increase in loads.

Track maintenance went up by a measly $42K. Train maintenance went down by $624K (a drop of 37%).

Company overhead went up by $2,264K.

Net result: it all cost about $18.1 million after the first year of running with the new locos.

Ok, so run them another year. Loads in the next year were 1,547 so hardly any change. Track maintenance is exactly the same.

Train maintenance is up by $72K (7%) over the previous year. This makes sense to me, since I know it increases with locomotive age.

Company overhead is up by another $2,437K! ***!?!?! Must be time to sacrifice some chickens, I suppose.

Ok, run 'em one more year. Loads are about the same (1,562). Track maintenance the same. Train maintenance up slightly again. Overhead up again, but not by as much.

I think I am getting a clue here. The rise in company book value between this year and the last was about half the rise between the previous two years. The rise in overhead was about 75% of the rise between the previous two years. I'm starting to suspect that CBV is tied into the formula for overhead, but have no idea exactly how at this stage.

[Stoker]

I have always thought that "Salaries" was the salary paid to the chairman of the company. Is this not the case?

[Gumboots]

Good point. Looks like it is.

[low_grade]

Yes.

And Overhead increases or decreases as the economy goes, right? I can't confirm, but have always felt, that when I hit Boom times, overhead increases for a few years and then levels out (or when you go from Normal to Prosperity, and the reverse when the economy is in decline.) I always thought this was one of the moderating effects, so that Booms aren't stupid good and Depressions don't hurt quite as much.

[RulerofRails]

Overhead.jpg (18.92 KiB) Viewed 5978 times

This is the in-game information about how overhead is calculated. I am guessing that size means Company Book Value. The relationship with Revenue is easily seen in the ledger. The part that says that it has a delayed effect is definitely true and why I have never bothered to try to get an accurate figure of what I am paying. I am guessing that in most games I play it would be in the 30-40 percent range. Because of the delayed effect maybe you would pay more for a couple of years after boom times have ended? I haven't noticed a change in the rate due to the economic state.

I think that this is actually another way that industry profits are favored by the game. The way I understand it, because revenue is "taxed", freight and passenger revenue incurs overhead "tax" before the major costs are taken out! Industry pays it's own overhead that doesn't make it on your books. So I would deduce that if one was to accurately work overhead rates out, rail revenues pay a higher percentage than industry revenue. Hey this is what I think, if you know better prove me wrong.

[low_grade]

Ah, right, so only indirectly related to the state of the Economy, according to that. But I'd guess not related to CBV, but to revenue, as the caption says. One way to test would be to stop all trains for a year and see if overhead remains about the same (as CBV remains about the same) or if overhead drops approximately proportional to the drop in revenue. Testing in a year where the economy and everything has been constant for the past few years, and overhead has also been about constant.

Okay, just tested running Neotopia II after I won in year 51, stopping all trains in December, Boom times, on revenue of $84M, industry profits $32M, overhead $24M, profit $33M. Next year, all trains stopped, revenue just industry down to $24M, profit to -4M, overhead near constant at $22.7M. Let it go another year, economic downturn in March to prosperity. Industry profits down to $19M, oddly overhead seems to be balancing everything as net profit is near $0, overhead down to $14M. Let it go another year, economic downturn in March to normal, Industry profits down to $15M, again net profit near $0, and overhead down to $9M. Let it go another year, economic downturn again in March to recession, Industry profits down to $12M, now a net profit of $2M , as overhead has plummeted to $2M!

If CBV is the same and overhead is so directly related to it, how can overhead drop from $24M/year to $2M/year? And also overhead has dropped MORE than revenue, which went from $24M on $84M to $2M on $12M, or ratios of 3.5:1 to 6:1. So it must have something to do with either or both of the state of the economy and last year's profits (seems to balance out pretty quickly to keep profits near $0...) I feel like I read somewhere specifically that rates of overhead are related to the economic state as well, as workers demand higher wages and so overhead goes up in better economic times, and costs of materials go up, which increases the cost of building track (as we all already know.)

Also, interest caps at $5M/year... once you have more than $500M in the bank, revenue from interest on it doesn't go up any more. Not that useful, but kind of an interesting secondary discovery that came out of this test.

[Gumboots]

Ah, right, so only indirectly related to the state of the Economy, according to that. But I'd guess not related to CBV, but to revenue, as the caption says. One way to test would be to stop all trains for a year and see if overhead remains about the same (as CBV remains about the same) or if overhead drops approximately proportional to the drop in revenue. Testing in a year where the economy and everything has been constant for the past few years, and overhead has also been about constant.

I did that. Those years when my overhead was going up were years in which haulage and income were almost constant. All I did was replace the locomotives and then see what difference that made over several consecutive years running. The only thing about the company that changed during those years was CBV. Revenue was so close as to be effectively constant. Economy state didn't change.