I've set up a couple of simple routes in PR1. Basically, buy something in one town, sell in the other, buy something in second town, and bring it back to first town. I get the mechanics of it...it's the supply and demand system that's maddening. It just doesn't seem like I can make any money.
Any tips would be appreciated. I'm really enjoying the game, but obviously still have a lot to learn. Don't worry about giving me a tip that should be obvious...I can use all the help I can get.
Thanks.

I've been working on one or two trade routes and managed to make quite alot of money by implementing them in new games. I don't have the notes with me right now since I haven't played the game in a while (problems with random crashing) but here are a few tips I remember off the top of my head.
1. Check a country's production to its consumption, that should give you an idea for its supply and demand. When you click on a well or click on a country when you're not in their port you get a pop-up that shows what they produce and how many barrels of it per day they use. So a country that produces alot of Potatoes, but only uses 2 barrels or less, will be selling them really cheap. Some countries produce a certain resource but use 0 barrels of it so you get a great deal.
2. Using the same method you can see which countries need a certain item but don't produce any of their own so you can make a killing selling to them. Set up a route based on these values.
3. A tobacco route early in the game can be very profitable. Buy tobacco from countries like Barbados and sell to Martinique, I think. I'll check on that for you but if you want to figure it out for yourself and don't want me to spoil it, let me know.
4. Food is always a money maker because the poorer countries will run out of it very fast. Try to keep some food and colonial items (e.g. wine, iron, pottery and clothes) on your active fleet so that if you happen to pass a country that needs them you can get the best deals because AI ships are trading too and I can't tell you how many times they get to a port before I do and change all the values. Oh, and with that said...
5. Pause when you land in a port. It gives you time to decide how much you want to buy and sell. If you leave the game unpaused while in port, the AI ships will continue their trading and will constantly change the values.
SPOILER
6. When you get your own 'place' have your automated trade ships drop their excess in your warehouses. Chances are your country will need them (you can sell to them) and it keeps the storage clear for items in your trading fleet.
SPOILER
7. It goes without saying: buy low; sell high, but you'll need to check in with your automated fleets occasionally. My early tobacco route gets a little stagnant later on so I'm usually stuck with tons of tobacco and no buyers. What I do is adjust the buy and sell amounts so, for example:
Early in the game I buy tobacco for 700-750 and sell for 900-950.
When that stops being profitable I buy for 800 and sell for 850.
Or you could just tobacco off until it picks up again but I'm just weird like that.
8. Check your trade totals in your diary, it shows you how much profit you are making. If a trade route that used to be profitable is suddenly in the negatives (it does happen), that means you need to amend your route. Check to see what items are not being sold as fast and lower the amount you buy or the selling cost. Even if it's a 10 gold difference it's still a profit, albeit a small one, and better than having your trade ships full of stuff they can't sell with no room to buy stuff they can.
That's all I can think of right now. Oh, cotton is apparently useless. I can find heaps of countries that sell it dirt cheap but can't find a single country that needs it. If I think of anything else I'll let you know. I really should get back to this game, it's amazing. I think it's crashing because of the autosaves... ah, well.

Thanks for the tips. I'll give that a try. I've noticed that you can look at consumption, but have had a hard time figuring out what "high" and "low" consumption really is. So they go through 2.0/day or whatever...great, what does that mean in real numbers?
I guess I can just start making a log of average prices, so I have a better idea of what's really a good deal or not. You gave a good example with the tobacco, so maybe I can figure out a few more commodities.
Thanks again for the info.

Sorry, I realise this thread is a couple of weeks old, but I've only just signed up. There's some great advice above. I have just a few comments to add.
Trade route lengths. Don't make trade routes too short. You need to give each town time to consume what you have sold it before you return to try and sell more. Personally, I try to set up my routes so that I don't go back to a town for at least two weeks, preferably three weeks. This way: a) the town is more likely to be craving the goods I want to sell it and b) the town will have had the opportunity to stockpile the goods I want to buy from it - which means better prices and better chances of turnover.
TheCuddlyOne's point 3 regarding tobacco being profitable early in the game. I would definitely agree that as soon as the game kick's off, you can make a couple of profitable sales with tobacco. In my experience however, this isn't sustainable for long. The reason is that tobacco is consumed very, very slowly, particularly at the low populations at the beginning of the game. As a result, it is going to be a while before tobacco is in sufficient demand to get those good sell prices again and you risk suddenly having a lot of your early capital locked up in what is the most expensive product. So, by all means, flog off some, but don't rely on it for too long. Food products (particularly fish, meat and potatoes) are much more sustainable in my experience.
TheCuddlyOne's point 7 regarding being overstocked with a product. I have often run into this problem (with Cacao very often). Reducing the sell threshold is definitely a good idea, but personally, I refrain from raising the buy threshold. The idea is to reduce the over-stock on the product - by raising the buy threshold, you expose yourself to buying even more of the product and there is no guarantee that your new sell threshold will be enough to compensate.
TheCuddlyOne's last point regarding Cotton. There are two products that are not consumed by the population in a town - these are Cotton and Dye. These two products are ONLY used for the production of Cloth. As a result, if a town doesn't produce Cloth, then it doesn't need Cotton or Dye. So, if you are going to set up a trade route that buys Cotton and/or Dye, you must make sure that there are towns on the route that not only produce Cloth (so you can sell these), but don't themselves produce Cotton and Dye (one is ok, as you can still sell the other).
HereForTheBeer's suggestion about setting "buy" orders in governor controlled colonies. This is a really good suggestion. The only danger of using the storage house is that if you go over the storage limit, then you are charged for the overstock and this is VERY expensive. Thus, make sure you revisit your storage houses regularly to make sure they aren't full or approaching capacity. I've gone broke really quick because of overstocking.
Quirinius

Huh. I actually haven't used the trade routes to buy/sell because it seems too unpredictable to me. Usually I find a cluster of 3 towns that are self sustaining (produce every good efficiently), and set up a trade route between those three towns. Basically, you pick up at one town, sell at the next, and stockpile everything at the last one (usually your governor town). Some goods, like sugar, I don't sell much of and just stockpile in towns where I need them for production (for rum).
Remember you can set up your warehouses to sell stuff too. Just make sure you don't produce more of any good than the overall consumption.
In order, the most profitable ventures start with food (fish, rum, particularly), but as those needs get satisfied shift to commodities (bricks/salt/wood/hemp) and eventually to goods like cloth/tobacco. Stockpiling the last two in a governor town storehouse is OK, because transport convoys will take a bunch back, resetting the price to ridiculously high amounts. The added bonus of setting up enterprises is that the amount you purchase is set, and by feeding the needs of those particular towns you allow their population to grow, opening up new ships, more settlers, and more consumption. Also it cuts down on the number of building permissions you need to buy. The hardest part of this is rationing sell prices to make sure you distribute what you produce evenly between your three towns.
Also, cotton and dye sell well in colonial towns despite their lack of consumption. Presumably transport convoys take them away at the same time they bring imported goods.
Also, once you're rich (600,000+ I think), you can loan money to the treasurers of the towns you're in and they pay you back double after roughly a year.

Re: "Also, once you're rich (600,000+ I think), you can loan money to the treasurers of the towns you're in and they pay you back double after roughly a year."
Wow, I never noticed that. I'll need to go and check. Or is this a Port Royale 2 feature (I only play PR1).
Quirinius

Hmm, I'll have to try lending money, as well. Sitting here with 3 million and not much to do with it. Sounds like an easy way to make 4 million. :)
In colonies where you set up production, presumably at the 'efficient' level, you can still make money selling those goods in that same market. Granted, you won't make as much as you would selling it in a high-demand colony, but you can get an easy 10-20% by setting a sell order at your warehouse, and it requires no further intervention once set up.
+1 on fish being a big profit center. Vera Cruz is a good colony to produce fish (and meat) because you can get the hemp and salt right there (make your own production facilities). Then set up a trade route far east - those towns are always low on fish so you can sell quite a bit above the 300 threshold.
Cocoa loses its luster later on. I'm not making much money from this stuff and it's to the point where it isn't worth buying any; just produce a little and sell it as you go. Or skip it altogether. Demand isn't great anyway.
Bricks are surprisingly good for such a mundane product - it's easy to make 40-50% selling those. Dyes, also. And of course, pick up cloth where you drop off dyes.

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Ahh thanks, great tip, in my current game mine currently is only on a 3 day trip between 4 towns but it is gradually waining in profitability, will have to try extending it and see if the average sell prices increase again. :)

Well, this is one approach, but it can go badly. Because you have to compete with the AI traders. And if you leave a town unattended for so long, you can find that the AI traders have supplied it while you were away. In order to give the towns time to consume what you sell them, it is not necessary to leave them unvisited for long periods of time, because you can also adjust the amount of goods you drop off to the lenght of your trade route. For simplicity's sake, let's use an example of a trade route that's 10 days long.

Every town on that route will only be visited by your convoy once every ten days. That means the optimum strategy is to drop off sufficient goods in the *warehouse* which you have previously built there to last them for 10 days. This way, the goods are gradually sold at the highest possible prices, because your warehouse administrators gets orders not to sell under a certain price. When he hits that lower limit of pricing, he will wait until the town consumes some of the goods before he sells again. You can find out what quantities to drop off using the town consumption screen: click on a harbor cannon or on the town center to get it to pop up; alternately, if you don't have a warehouse in town, clicking on the town while no ships of yours are there will also bring up this consumption info. So let's say on of the towns in your route has a consumption of 5 for grain. This means the town will consume 5 barrels of grain every day, or 50 barrels of grain in 10 days (10 days = lenght of your route, remember?). You should therefore drop off no more than 50 barrels of grain with every visit your convoy makes there.

But should you really drop off the whole 50 barrels? Well, that depends on if you buy the respective goods elsewhere, or if you produce them yourself. If you produce them yourself efficiently, you can afford to drop off 50 barrels of grain every ten days and set the selling price at the warehouse so low that you are sure none of the AI traders will sell cheaper than that. This ensures that all your produced goods are sold for a profit. But if you buy the goods in other towns, you should generally not supply the whole 50 barrels. Why? Because AI traders who produce that good efficiently in their own businesses will be able to sell cheaper than you can. Which means you'll only sell a part of those 50 barrels and the unsold goods will accumulate in the town with every passing of your convoy. So for bought goods, you are generally on the safe side if you supply only half of the demand, to ensure that all of your cargo is eventually sold. In some cases you can supply more then that, especially if you use the load/unload settings in your trade route that are discussed below.

For simplicities sake, lets use just 2 towns in this route: Town A and Town B and let's assume your trade route is 10 days long and that you have a warehouse in each (always very helpful). Set your warehouses to both buy the goods which the town produces and to sell the goods which the town does not produce. In town A, you buy meat and fish to sell in town B, where you buy tobacco and cocoa to sell in town A. For simplicities sake, let's say the 10 day consumption for all sold goods is 50. You should set your warehouses to buy 50 of each goods you intend to sell. So warehouse A buys 50 meat and 50 fish, while warehouse B buys 50 tobacco and 50 cocoa. The settings for your convoy should be as follows:

1st Stop: Town A
Unload MAX Fish to warehouse
Unload MAX Meat to warehouse
Load MAX Tobacco from warehouse
Load MAX Cocoa from warehouse

2nd Stop Town A (yes, town A again)
Unload 50 Tobacco to warehouse
Unload 50 Cocoa to warehouse
Load 50 Fish from warehouse
Load 50 Meat from warehouse

3d Stop Town B
Unload MAX Tobacco to warehouse
Unload MAX Cocoa to warehouse
Load MAX Fish from warehouse
Load MAX Meat from warehouse

4th stop Town B (yes, town B again)
Unload 50 Fish to warehouse
Unload 50 Meat to warehouse
Load 50 Tobacco from warehouse
Load 50 Cocoa from warehouse

These settings ensure that goods that are not sold during the 10 day interval of the trade route (for example, because an AI trader has brought a very cheap delivery) do not accumulate, but are brought back to the town they were originally bought in. In this town were they were originally bought in, they can not accumulate because you have a buying cap in your warehouse: If the quantity for the respective good is equal to or higher than (in our case) 50, the administrator stops buying, no matter how cheap the good is offered in town.

It is very important to set up the route so that with every stop, your convoy first UNLOADS and then LOADS. This helps to keep the necessary cargo space at a minimum for each convoy. In the editing screen of the trade route, the items higher up will be dealt with first, so you can change the handling priority by dragging the little icons of the goods around. Drag items to be unloaded UPWARDS and items to be loaded BELOW them. Note that you can only drag around icons of goods that are actually loaded or unloaded during that stop. So in our route, you can only drag around the icons of meat, fish, tobacco and cocoa - you can't move the other little symbols around (and it's not necessary).

This system is very efficient in preventing accumulations of goods. The two downsides are that you need slightly bigger convoys than usually and that you can only visited half the number of towns that a 1-stop-per-town convoy would be able to visit. But usually, it's worth it, to ensure maximum profits and to prevent accumulations of goods.

If you produce all the goods you sell yourself, not buying anything from towns, you could get away with using 1-stop-per-town routes, but then you'll have to ship slightly fewer goods than the full town demand AND you'll have to check your warehouses from time to time, to see if there have been accumulations, just to make sure. No matter how many stops per town, make sure your convoys first UNLOAD and only after that load.

Hope that helps.

I can appreciate the risk Ameretat raises concerning competition with AI traders. However, my experience is that the AI traders don't impact significantly on the trade in towns as their trade is quite random, whereas the player has the ability to target their trade.

The key issue with Ameretat's approach is that it relies on you having warehouses set up in all the towns you are trading in ... which requires you to have purchased expensive building licences and limits the number of towns to 10 (and possibly less based on your rank if I recall correctly).

There is a risk/reward factor in play here. Ameretat's approach is lower risk because you will constantly have supplies there to sell as soon as the price goes over your bar. However, the impact of this is that the prices will never go really high as your storekeeper sales technique will tend to keep them around the bar you set. My approach is higher risk because another trader might sells goods during the gap time, but the gap allows the stocks in the town to potentially drop very low, pushing prices up much higher than can be achieved with the warehouse approach, yielding much higher potential profits. It really comes down to the style of play you want to go with.

That said, in towns where I have businesses, I do make use of the storekeeper to sell goods. But this isn't so much to make money as to maintain stores in the town. If you can keep sufficient stores in the towns you occupy, their wealth level is better, there's less risk of sickness due to hunger and the population increases more quickly which leads to greater consumption and thus increased trade over time.

As Ameretat also notes, the other very important thing that you absolutely must do if you are stocking your storehouses is to consistently monitor the quantity of goods in the store. It is a well documented fact that excess storage fees can kill your margins very quickly in the game.

Q

What are your sell prices for the following?

Grain
Fish
Meat
Potatoes
Rum
Cloth
Salt
Bricks
Timber
Hemp
Tobacco
Dyes
Cocoa
Sugar
Cotton

Been a while since I played but I think I shoot for 20%+ profit. If I need the space to pick up cargo with a better potential profit, then I'll sell at break-even, or else throw it in storage if I happen to have a warehouse at that town.