Penny Auctions 101 – Guide To Understanding How Penny Auctions Work
What Is A Penny Auction:
A penny auction is the name given to a website that sells items utilizing a pay per bid business model. Penny auctions are a competition between bidders to be the last person to bid in an auction before a count down clock reaches “SOLD”. If you visit the home page of any of the big penny auctions you will see all sorts of auctions counting down towards zero, many only a few seconds away.
It looks like you can buy items for sale at pennies on the dollar!
But there is a catch. Let’s start with the fundamentals of how penny auctions work.
Penny Auction Rules – Where To Start With Penny Bidding Sites
- The penny auction site puts up an item for auction starting at $0.00
- The auction has a count down clock that starts ticking down
- When the count down clock reaches ‘zero’ or ‘SOLD’, the person who placed the last bid wins
It sounds easy, and it easy to place a bid, but it is not simple to win an auction. Here is why:
- If you want to bid, you must purchase bids first
- Bids cost around $0.60 (varies by website)
- Each time a click the bid button you spend one of your bids. Also, the price of the auction goes up by 1 penny
- Another catch is that each time a bid placed there is also around 10 seconds added to the count down clock (amount of time varies on different auctions).
- Anyone may bid at anytime up until the timer hits ‘SOLD’
- Last bidder wins
So your job is to spend as few bids as possible being the last person to place a bid before the clock counts all the way down.
- Winning an auction means you have the right to purchase the item at the auctions closing price.
- If you do not win then your bids are not refunded. You can lose money.
- There is only one winner per auction and the rest of the bidders do not get the item unless they were participating in a ‘BIN’ auction, which means ‘Buy It Now’ (explained more below)
How Do Penny Auctions Sell Items So Cheap? Are They Scams?
Penny auctions are in the business of selling bids. Not products. Utilizing a pay-to-bid format, penny auctions make money each time someone clicks the ‘bid’ button.
- Bids cost money – usually ~ $0.60 each
- Each time you bid you are spending one of the bids you purchased, win or lose
- If you are outbid you must bid again or give up trying to win the auction
- If you bid on an auction and do not win, then you lose the money you spent on wasted bids trying to win
- The winner of the auction usually gets a fantastic deal. The losers offset the sites cost and where the penny auction site itself makes it’s money
The above was an auction for an xbox game on Skore It that ended at $1.06. That means that in total bidders hit the ‘bid now’ button 106 times. Each bid cost the bidder $0.60. 106 x $.60 = $63.60 in total bid revenue earned by SkoreIt.
The winning bidder spent 36 bids to win this auction, costing him just about $22. 36 x $.60 = $21.60
So – the penny auction site earned money by selling 106 bids primarily for an estimated revenue of $64 dollars for the video game they auctioned for just over a buck. They also charge the ending auction price of $1.06 and shipping charge that is usually $5-$12 depending on the item(s) and where it is shipping to.
Even though the auction price ended at just over a dollar, the Penny Auction site generated ~ $64 in the auction. (106 bids x $0.60 per bid = $63.60). The actual price varies because the bid prices vary on Skoreit (more bids you buy the better deal you get).
Pretty ingenious wouldn’t you think?
How Penny Auction Sites Work – The Auction Life Cycle
Penny auction sites, like the biggest penny auction, Quibids.com (screen shot above) use a pay-per-bid business model.
Penny auctions are a competitive game of brinksmanship based loosely on the dollar bill auction theory. I call it a game of ‘chicken’ that costs money to play.
In a nutshell, penny auction sites use a pay-per-bid business model that requires you to purchase bids and use those bought bids trying to be the last bidder standing in an auction that the timer is counting down to zero. If you are the last bidder when the timer reaches zero then you win the right to purchase the item you were bidding on for it’s ending auction price (which is usually huge savings off of it’s retail).
The catch is, that whenever someone bids the auction timer is extended 10 seconds (or some fairly short amount of time) and the ending price of the auction goes up one penny.
The next catch is that if you lose, you lose money and do not get anything. Any bids spent are gone and non refundable. Bids typically cost around $0.60 each, give or take.
Watch this How Quibids Works Video
How Penny Auctions Work
Keep in mind this is a bit salesy for Quibids. It is not so simple to just bid and win! Be sure you arm yourself with our QuiBids tips and strategies before bidding!
How To Win A Penny Auction – Can You Really Get Great Deals Penny Auctions
Yes, you can get amazing deals.
However, it is not easy to win. It may look easy, but looks can be deceiving. Penny auctions are completely different than eBay or other traditional auctions you may be familiar with.
They are a strategic game played by the simple rule that each time you bid it costs you money whether you win the auction or not. Bids are generally NOT refundable once you use them trying to win an auction, however you can bid in auctions that have a feature called buy it now “BIN”. These special penny auctions allow you to use money spent on bids towards purchasing the item.
This means that there is risk when bidding. That risk is losing money, or in the case of a BIN auction, risking having to pay full retail, or inflated retail prices for an item. It costs money for every bid placed. So to win, you have to convince the other bidders that you are not going to stop bidding so they may as well stop bidding. They are trying to convince you of the same thing. Once the pay per bid business model ‘clicks’ in your head, the thoughts should turn to figuring out if you can win these.
The good news is that you can win penny auctions.
They are psychological games that are similar to games like poker and chess. If you like strategic games and have a little bit of gamble in you, you will probably really love bidding in penny auction sites. There are people who make significant profit winning items and re-selling them for profit over the long haul. The realistic news is that it is not easy to win penny auctions. Even the best penny auction bidders do not win every auction they enter.
It takes bidding strategy, tactics and execution. If you enjoy competitive games and have a little gamble in you, then you will probably really like and do well in penny auctions. If not, you are probably better off sticking to ebay and craigslist. Penny auctions are not discount shopping!
Now, let’s recap one more time how penny auctions work.
- Buy Bids – This is the fundamental difference in the ebay vs penny auction model. Users buy bids which are used to bid on an auction item. The cost associated to the right to bid is what keeps the prices so low and provides the opportunity for savvy users to win extreme deals. The cost of a bid varies from site to site but most average in the $.60-%.75 per bid range. Many sites offer discounts with larger bid packs
- Bidding On An Item – Once you have your bids it is time to find an auction you like and start bidding. Most penny auction sites start each auction at $0 and the price of the item goes up by the pre-defined incremental value each time a bid is placed. Depending on the penny auction site the value an item goes up will be 1,2,5,10 or 25+ cents every time a bid is placed. This incremental value is typically clearly visible on each auction. The 1 cent (penny) increment is still the most popular.
- Last Bidder Wins – Just like most auction formats the final bidder wins the item. With the penny auction model a time counts down to 0. The timer will be extended every time a new bid is placed, typically under 10 to 20 seconds. There are many deviations from site on site on how much time is added to the clock but the concept is universal. Some sites will add as many as 30 seconds to the auction and others have turbo features where only 5 seconds is added to the clock.
- Pay For The Item – Once you’ve won the auction you will typically be able to pay for the item immediately and provide your shipping information.
- Determining The Total Cost– With the penny auction format your total cost for an auction item is the cost of the bids you placed plus the final auction value.Example:You won a $100 gift card for $13.50 and used 30 bids during the auction.Your cost for the $100 gift card = $13.50 + $18 (30 bids * $.60/bid) = $31.50
- Buy It Now– Some penny auction sites offer a Buy It Now feature for bidders who did not win the auction. This feature provides a very low risk opportunity, especially if you were already prepared to pay retail price for the item. Most sites that offer a buy it now feature for losing bidders will credit back the value of the bids placed towards the retail value of the item.Example:You used 30 bids that cost you $.60 each on a $100 product and lost. With most Buy It Now offers you will get a credit for the value of the lost bids if you wish to buy the product.Your price to buy the product would be: $100 – $18 (30 bids * $.60/bid) = $82Sites That Currently Offer a Buy It Now Option: Quibids, Bid Rivals
We have gone over the basics here but there is a lot more to being successful in penny auctions.
See penny auction strategies for more advanced concepts and read through our penny auction site review page to find details on other quality penny auction sites or learn more by reading our growing glossary of penny auction terms and lingo dictionary. The above penny auction rules cover the way most penny auction sites work. Each penny bidding site will have slight variations or specific rules, so check those first before bidding of course.
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