Today’s post applies to live auctions. Over the last two weeks, I’ve received some version of this email from two different clients:
“The donor of this item wants to set a minimum starting bid of $1500. What do you think? What starting bid would you recommend?”
It’s not uncommon for those new to benefit auctions to confuse the terms “starting bid” and “minimum bid.” Usually your donor is expressing “minimum bid,” meaning that he doesn’t want the item to sell for less than the amount he has stated.
Consignment items, for instance, almost always have minimum bids. The auctioneer cannot sell the consigned item for less than the minimum bid provided by the consignor.
But a minimum bid is not a starting bid.
To make this as simple as possible, here are my layman’s definitions:
- “Starting bid,” also called “opening bid”: the amount suggested by the auctioneer to open the bidding. If no bidders are interested in bidding at that amount, the auctioneer will drop the opening bid until a bid is received.
- Minimum bid, also called “reserve price”: The price at which an item can be sold. If the final bid does not reach the minimum bid, the item remains unsold. (In other words, the starting bid can be less than the minimum bid, but the item cannot be sold until it reaches the minimum bid.)
Auctioneers will joke that it doesn’t matter where bidding starts; it matters where it ends. And to a large degree, the science behind that is true. Research has shown that the lower the starting bid, the higher the final price.
You’ll raise more money if you open every item at a low amount versus whatever number you’re using now.
This is because auctions – silent, online, and live – are filled with psychological triggers. Understanding these triggers helps you raise more money.
When people raise their hand to participate in bidding, they become invested in the outcome. Once invested, these bidders become more reluctant to stop bidding.
Hence, the lower the starting bid, the more “investors” you will have in your item, and the higher the final price will be.
Isn’t that interesting?
Though this concept has been long taught in auctioneer school, it’s also been scientifically studied.
Professor Adam Galinsky of Northwestern University’s Kellogg School of Management studied eBay auctions. He found that starting an auction at a lower price almost always resulted in a higher sale price.
“Because you lower barriers to an auction, you get bidders to invest time and resources [in the auction],” Galinsky said. “They get trapped.” (Want more information on his research? Here’s an article.)
In other words, your bidder is on an emotional roller coaster, thinking, “I wasn’t all that interested in this trip to New Orleans. But jeesh, it was so cheap, I bid on it. And now that I’m bidding, I’m annoyed with that guy across the ballroom who is bidding against me. This is MY trip, not his!”
Lo and behold, the trip sells. People who were not even interested in going to New Orleans are now buying it.
Here’s the takeaway: When a donor starts to chat with you about an “opening bid,” get clarity. You might say, “I want to be sure I understand what you mean. You’re telling me that you don’t want your item to sell for LESS than $XXX, right?”
In my experience, that is what the donor is attempting to articulate. They don’t want their donation to sell for less than the number they’ve given you.
Don’t get bogged down in terminology with donors; it tends to confuse them. Instead, agree on what you’re trying to achieve (i.e. “I don’t want to sell this for less than $XXX.”). Once you’ve confirmed this, pass that information along to your auctioneer who can handle it seamlessly onsite.
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