Penny auction is a type of auction in which a product or service is put up for auction at a minimum cost, bidders place bids with a fixed small increment and you have to pay for each bid. The participant who made the last bid is considered the winner. This article will show you how to create your own penny auction website and make money from it.
Principle of penny auctions operation
$ 3,400 jacket sold at DealDash penny auction for $ 56
How penny auctions work
. To understand this, let’s consider an example.
A digital camera Sony Alpha A7 III Body (without lens) was put up for sale at a starting price of $ 1, with a market value of $ 1.8-2.3 thousand. The bid step is fixed - 1 cent, the cost of one bid is $ 1. Let's say that players made 6,000 bids, thus raising the lot price to $ 61. Then the owner of the camera, if it is sold for $ 61, will receive $ 6061: (cost of the bid $ 1 * 6000 bids) + the selling price of the lot $ 61 = $ 6061.
As you can see, with such an auction mechanism, the owner of the lot can receive significantly more money from the sale, even if the product or service was sold at an incredibly low price. Buyers, in turn, can buy an expensive lot at a very low price (as in the example above, where a camera that costs about $ 2 thousand was sold for $ 61). The organizer of the penny auction (website) also wins, as it removes the commission from each transaction.
Penny Auction Bidding Rules
. The general principles are no different from the rules on eBay or another similar auction site
: a product or service is put up for auction by a supplier, players place bids, increasing the value of the lot, the winner is the participant who made the largest and / or last bid.
Each new bid increases the duration of the penny auction by a fixed time
Feature of penny auctions is in the following things:
- Starting price is always 0 or 1 dollar.
- You have to pay for each bid. This is a small amount, for example $ 1, which is not scary to risk, even making 10 bids. And the bid price is always higher than the fixed increment of the lot price increase by bidding.
- The bid move is fixed. This is usually a very small amount, such as 1 cent in the US or 1 penny in England (hence the name of the auction), allowing thousands of bids to be placed before the price reaches market value.
- Each bid made delays the end of the auction by a fixed time, for example by 10 seconds or 1 hour.
Penny Auction Site Business Model
When deciding how to launch a penny auction, you must consider how you will profit from it. This can be done in two ways: by becoming the sole supplier of the auction goods or by creating a multi-vendor marketplace
. In the first case, you will earn on payment for bids, which is very profitable if you can find many interesting product offers.
The second way means that at your auction, anyone can put up a lot for sale, as on Etsy and eBay. You can monetize such a site in the following ways:
- Pay per bid. In this model, the penny auction receives a portion of the profit from all bids made by the bidders, for example 5% or 10%. If you take the Sony camera example above, where the seller received $ 6,000 from bids, then the penny auction site would receive $ 300 or $ 600 in bids revenue.
- Listing Fee. When a seller lists his product or service for sale, he must pay a small amount to the auction. The fee usually depends on the category of goods, for example, when selling real estate, it is $ 100 per lot, and when selling a smartphone or refrigerator, it is $ 10.
- Premium functions. At regular auctions, this is an increase in the number of simultaneous bids, promotions and bonuses, analytical and marketing tools, integration with social networks like Linkedin. In the case of penny auctions, you can add a bot to this that will bid for you 5 seconds before the end of the auction when you are offline (like the Bid-O-Matic bot on QuiBids).
- Advertising lots on the site. Paid promotion of individual lots or sellers within the platform. For example, placing the lot on the first screen, placing the lot at the top of the listing, brighter design of the lot, place in recommendations, place in the field "Similar products", etc.
- Partner integrations. Promotion of third-party brand services within the auction site. For example, an auction might recommend that users use a specific mail service in exchange for a portion of the revenue from each delivery. It can also be financial, insurance or various repair services.
Niche and target audience of the penny auction
Gift cards are one of the most common niche for penny auctions
Unlike traditional online auctions like Etsy and eBay, penny auctions are not that popular and there are no benchmark sites that everyone knows about. Therefore, when starting your penny auction, you can choose any niche for your project. Whether it's a marketplace where anyone can buy and sell any kind of product, or a niche site where they only sell gift cards. The main thing is that goods or services can be sold using a penny auction.
These lots include all goods and services where buyers know their estimated cost or they can easily establish it. For example, Apple iPhone 11, the approximate cost of which is known to everyone, or Samsung refrigerators, the price of which can be found on a site like Amazon
. If the market value of the lot is unknown or it cannot be quickly established, then such a lot will most likely not arouse interest among buyers, since they will not be able to see the possible savings.
The "uninteresting" lots include handicrafts and objects of art by little-known creators. In addition, relatively cheap goods, such as a regular pen or a medical mask, can also be attributed to "uninteresting" lots: why spend one dollar on a bid in an auction where the winning is a two-dollar pencil? Similar products on penny online auction sites need to be sold only in bulk so that the potential winnings are not $ 1, but $ 50.
The "interesting" goods for penny auctions can be:
- Household appliances, electronics, gadgets, computers.
- Vehicles: cars, bicycles, motorcycles.
- Air tickets, hotel room rental, excursion.
- Land plots, real estate.
- Clothes, footwear, accessories.
- Gift cards.
Key functions and technology stack
eBay online auction functions can be cloned when creating a penny auction site. Source