The promise of the future is an awesome force!
Imagine someone owning a business where they can buy a product at a
wholesale price, say $300.00, and list it at a retail price of say $500.00, and
then sell it for less than the wholesale price at around $75.00, and still get
around 1286% gross profit on the sale, $4,150.00.
Now also imagine you are surfing the Internet and you come to a
site that is advertising “Get a $500.00 TV for only one penny”. “All you
need to do is purchase 1 bid at 60-cents and enter the auction.” “You may win with only that one bid!”
Wow! You do win! What a win-win situation for you and the auction
owner. He gets a great profit from just one sale and YOU have a
brand new $500.00 TV shipped to your address that only cost you one cent
plus 1 bid at 60-cents for a total of 61 cents (providing you won with the
one bid). Such a deal!
Let’s do the math.
For the TV to be sold at a winning bid of $75.00 there had to be
7500 penny bids placed. Now since the auction owner originally sells the
“bids” to the bidders, that would be 7500 x .60 = $4,500.00 just for the
sale of the bids for that one auction. Subtract from $4,500.00 the cost of the TV ($300.00) and a reasonable shipping cost of $50.00, the auction
owner’s gross profit is $4,150.00; easily stated as 4150 / 350 = 12.86 or
1286%. Remember if the auction owner gets back $350.00 that is 100% of
their investment. In this case it is over 12 times their investment price
or more than 1200%.
Once the bidding goes past $5.83 in this case of the TV, the
auction owner starts making a profit. Let’s do the math again.
The TV sells at a winning bid of $5.83 so there were 583 penny bids
@ .60 each for a total of $350.00 just for the sale of bids. Subtract
from $350.00 the cost of the TV ($300.00) and a reasonable shipping cost
of $50.00, and the auction owner’s gross profit/loss is $0.00.
In all fairness I must state that most auction sites work on 10 to
15% margin and they lose on as many items as they make a profit. The same
TV above could have sold for an auction price of under $1.00 (and many
high value items do close at a very small price sometimes).
Ok now that I have your attention let’s look at some things to be
aware of. After all the gambling spirit is in most of us and you just may
want to take a chance at winning a TV for a few penny bids.
Traditional Auctions
In general, the participants attending a live traditional session
are local and register at the auction site to receive a number (paddle)
to show when bidding. The auction from this point on is driven by the
bidders until a final price is settled upon. The price for each item put up for auction is normally settled in a very few minutes. The bids are free and
the auctioneer gets a commission on the selling price. No one is committed to
spending money except the winning bidder.
On-lineauctions such
as eBay® work pretty much the same but the amount of time for each auction is measured more in days not minutes to give the world wide
audience a chance to bid.
You must register with eBay® but all bids are free.
How does an online penny auction work?
In general the participants of online penny auctions must
first buy “bids” from the auction site in order to bid on an item at that
site. These bids are non-refundable in most cases and can vary in costs
from as little as 10 cents each to $2.00 or more each. The auction site will
keep your pre-purchased bids in a personal “bid-bank” for you to use
while on their site. Yes it is possible to belong to multiple Penny
Auction sites and each one holds your unused bids in safe keeping for
your return. Some sites will charge a membership fee for these services.
When the bidding is opened, the price of the item is generally set
to zero. The first bidder to place a single bid starts the clock and the
item is now one cent. When the next and each bid thereafter is made it
will reset the clock and increase the cost of the item by 1 penny thus giving the name of the auction; Penny Auction.
Pennyauctions can go on for hours so plan on plenty of time to sit
back, watch and/or participate in the auction. Since each bid adds time
back to the countdown clock you may have to wait anywhere from 10 seconds
to 2 or more minutes without a bid to see the “going once – going twice –
sold!” message.
The goal is to be the high bidder when the clock finally runs out. The
auction process can be unpredictable and take much time to complete. By
using my example above with the TV selling for $75.00 it will show that
with simple math, 7500 bids at just 3 second intervals each can take up to 6
plus hours.
7500 x 3 seconds average = 22,500 / 60 seconds per minute /60
minutes per hour = 6.25 hours One more thing, some sites will
not let you enter an auction in progress after it passes a certain amount
so there is no waiting until the last minute to get in.
The auctioneer receives the money paid for each bid, plus the final
price of the item.
How do I Bid?
At a live auction you
would show your number (paddle) to place a bid for free. But this is an online auction with an unlimited amount of bidders worldwide and the bids
are pre-paid. Imagine if you went to a live auction and every time you
raised your paddle you had to pay a dollar. That seems to me that it
would discourage bidding.
For online bidding, you start the bidding by clicking on the Bid
Button (provided you have bids available in your bid-bank). If someone
out bids you then click again to raise the bid once more.
This is the manual bidding process and the safest way to
participate. You can stop anytime you feel you have reached your budget
limit for bids on that item.
There are also auto-bidding mechanisms that can be set up in which
the program will bid for you, sometimes bidding at the last second. This
can be dangerous because 100 bids can go away in a matter of a few
minutes if someone else decides to go on auto-bid at the same time. This
is known as bidding wars. While the bidding wars are going on, the other
bidders just sit back and wait to jump back in when the war is over.
Some sites run hundreds or even thousands of auctions
simultaneously around the clock, with items of different values ranging
from $10 gift cards to expensive electronics and appliances. Auto-bidding
bidders may have a spot in several of them at the same time.
Where and how do I get Bids?
To get bids, you register a credit or debit card with the auction
site and some will even take PayPal or Payza. The bids are generally sold
in packs, with the minimum pack costing around $25 up to several hundred
dollars, depending on the site. Unused bids may be refundable on some
sites with a deadline but check first because as with most sites there are no
refunds.
One major difference between traditional auctions and penny
auctions is the bids you place in a traditional auction are free but any
bids you make on a penny auction must be bought first and when they are
used they are gone, whether you win or not.
Back to the TV example, if you've made 150 60-cent bids on a
$500.00 really cool TV but you do not win it, you're out the $90.00 for
bids.
On the other hand however, if you end up as the winning bidder, you
have the right to buy the TV for the winning price. So if the bidding
ends at $75.00, the TV would cost you $165.00: the $75.00 price plus the
$90.00 in bids you placed. Some winning prices include shipping and many
do not so you may have to pay for shipping and handling, which varies by
site.
Quick Summary
1. All auctions require you to register. Many online
sites may have you pay a fee to register. Sometimes, the fee is substantial.
2. In a traditional auction, only the winning bidder pays
anything. In penny auctions everyone pays for the right to bid by buying
their bids first.
3. For online penny auctions you buy a “bid package” to get
bids. For example, you may buy 100 bids for $60 (60-cents each).
4. You must purchase additional bids during the auction if you
run out before the auctions ends and want to continue bidding.
5. All participants that bid in penny auctions pay something win or
lose.
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