Auction Tips

Setting Proper Expectations of a Revenue Goal for Your Silent Auction

Tips to setting revenue goals
Tips to setting revenue goals

Goals are important to us here at Handbid. We use them to measure how well we do across all areas of our business, and we encourage our clients to do the same when setting up their auction in our system.

In fact, all of the thermometers on display in the Handbid software are driven off of the revenue goals set by our clients.

To set proper expectations of an auction goal, it is important to understand what is realistic for a silent auction to generate in terms of revenue. It is possible to be relatively accurate, but only if you understand key principles about silent auctions.

Setting your silent auction revenue goals and expectations

Silent Auctions tend to generate less revenue than the total sum of the fair-market value (FMV) of the items up for bid.

The fair-market-value is the value that a buyer could pay for that item on the open market. For some items, this is rather easy to determine (e.g., a $100 gift card to a local restaurant has a FMV of $100). However, for others it can get rather subjective. Accurately determining the FMV is probably the single biggest factor in determining the revenue potential of your auction.  

We won’t get into the details of how to do that in this post, but we encourage to read our knowledge base articles on how to determine the fair market value of a silent auction item or information on why “priceless” is not a value.

Silent Auction bidders tend to bid below the items’ FMV.

One thing to understand is that silent auction bidders tend to be bargain hunters. This means that most are looking for a deal and expect to pay less than the FMV of the item. Even if the FMV of the item is not well known, each bidder has an opinion of what they think the item is worth. This opinion of the item’s value will influence their maximum bid if they opt to place one.

One distinct advantage of mobile bidding in this case is that the auction host can get a sense of their bidders' opinion of an item's value --- just by looking at the Max Bids on the item (assuming bidders enter their actual max).

Handmade or Rare Items Up for Auction

It’s essential to understand that handmade or rare items can throw off your FMV calculations and goal setting. If your auction is full of hand-made items (e.g., art, jewelry, crafts, or class projects) or unique experiences (bowling with a teacher or meet and greets with a celebrity), these can be really difficult  to value. In many cases, the value of the item is the cost of materials to make it (e.g., the canvas artwork with the kindergarten class’ hand prints). Expect that you will need to estimate a final price on these items and adjust your goals accordingly.

Donated Items Up for Auction

Item donors will throw off your FMV calculations. Donors have been known to inflate the value of the items they donate for tax purposes. Keep this in mind when setting goals (and starting bids). While a necklace donated from a jeweler might have a $4,000 price tag, your bidders may only believe it is worth $1,000. Make sure to do some due diligence to determine what similar items sell for online or at other stores before you set a goal you can’t possibly meet.

So what is a realistic goal for the auction?

The first step will be to list your items and in a column next to the FMV, either copy over the FMV if it is accurate or adjust the value to be more accurate. You won’t change the FMV on the item for reporting purposes; this is just to estimate the goal.

When you are done listing out the FMV of all items up for auction, sum up all those values to get your Adjusted FMV. We will use this number in the next step.

The general rule of thumb is that paper bidding often generated 40-50% of our “Adjusted” FMV and mobile bidding would garner 70-80%. Many of our clients see their auctions perform in the 70-80% of adjusted FMV range or higher (especially if they follow our advice on how to properly set starting bids and bid increments).

If you are being conservative or if this is your first silent auction with mobile bidding, set your goal to 70% of your adjusted FMV. If this is not your first year doing mobile bidding, consider being more aggressive with your goal and shoot for 80%.

Pro tip: We've found success setting bid increments equal to 10% of the starting bid price for most items below $1,000. For items over $1,000, we advise our customers to set bid increments as less than 10% of the item. So a $500 spa day would have bid increments of $50, and a $2,000 vacation package should have bid increments less than $200.

Avoid the following goal-setting pitfalls

Just because your auction did $20,000 last year does not mean it will do the same this year. For example, if you had 150 items last year and averaged $133 per item and this year you have only 100 items that are about “the same,” it would be hard to exceed $20,000. Be sure in all cases to add up the FMV, make any adjustments (positive or negative) and set a goal as a subset of that amount.

If your goal is 75-80% of FMV, be sure to avoid factors that will prevent you from hitting that percentage. These include high starting bids, high bid increments, short auction times, as well as poor item descriptions and displays. We cover all of these factors in our training with our clients as they have a big impact on an auction’s performance. (For more information about setting bid increments, check out this article.)

Setting expectations on what revenue your silent auction will generate is an essential part of the planning process. Failing to set expectations could overestimate the ROI on your event, which could turn into further budgeting issues down the road. Follow the tips and principles in this article to ensure your revenue goals are realistic and attainable.  

For all Handbid customers who request on-site help with their event, we run through a kick-off process to ensure they are thinking about and planning for essential elements in their auction.

If you want a recipe on how to run an auction, its best to consider our consulting services. Otherwise, if you and your team are ready to start planning your auction event, this kickoff eBook is a great place to start!

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