Setting Starting Bids and Bid Increments in your Silent Auction

Here is another blog article in our series of silent auction tips.  This one is related to setting starting bids and silent auction bid increments.

Ok so you are tasked with organizing a silent auction and you have no idea where to set the bid increments.  Or, perhaps you are wondering if you can better optimize your auction to perform better than it has in the past.  In either circumstance, you are wondering – how do I set the item starting bid and bid increments?

In this blog article, we will give you some ideas on how to best optimize your starting bid and bid increments!

So, where should you set your starting bid and bid increments? If you search around the Internet, you will find some rules of thumb and some best practices. In most cases these are based upon some sort of basis such as “Fair Market Value” (FMV).

Many will tell you to set your starting bid to some percentage (e.g. 30%) of FMV. If your fair-market-value is inflated, however, you will create a steep entry point for your item. If you are going to base your starting bids off of fair-market-value, keep in mind that FMV can often be subjective. So just be careful.

What is the FMV of an item?

Be honest yet fair with FMV. If its at $50 gift certificate, then its value is clearly $50. If its something else, make sure you estimate the value “fairly”. Remember, donors can inflate these values for their own purposes. Make sure you don’t just take their word for it. Search the internet and check. See what people can buy a similar item for online. I had a donor once tell me a baseball signed by some “random” MLB player was worth $250. An internet check found it available from multiple places for $75.

An accurate FMV will help you better understand how your bidders are bidding. While you may state the item is worth $250, don’t be surprised if bidders think otherwise. Be accurate. Bidders will appreciate it since they really only get to claim deductions on their purchase amount > FMV.

What is a fair starting price?

As I mentioned before, some advisors will tell you to set minimum bids to ~30-40%% of FMV. Is that always the right point? We think starting bid prices are more of an art than a science and formulas don’t always work. Our years of data crunching have shown us that the bid increment is actually a bigger influence on overall auction performance (read more on that below).

We think that 30-40% of FMV is an “ok” place to start.   Auctions work well once people are engaged. To get them engaged, you need to get them a low (but fair) entry point. If you set the starting bid price too high – you will price out some people – even those that may have paid a price higher than the starting bid. This is because once people get engaged in bidding on an item and get emotionally attached to it they can tend to convince themselves to bid higher. Its hard to get them to that state if they never get started on an item.

What is a good bid increment?

Bid increments should be kept as low as possible and mobile bidding makes it easier to do that. Many have a formula for this as well.  Here is what i suggest – you keep your bid increments AS LOW AS POSSIBLE.

For those coming from silent auction paper bid sheets, the practice was to put bid increments reasonably high to incentivize people to bid.  However, we discussed the hidden costs of bid increments in a paper silent auction.   In most cases, people set bid increments way too high – especially for more expensive stuff.

Think of it this way, for an item with a FMV of $1,250, using a ratio of minimum bid at 40% of FMV  and increment at 15% of minimum bid, we would have a starting bid of $500 and a bid increment of $75. This automatically prices out anyone who would have paid an amount between $500 and $575 or $575 and $650. The more bidders you get involved, the better. Once they are in a bidding war – their logic seems to fall by the wayside and emotions take over.

The “formula” approach

If you are the type that absolutely needs formula – here is one to consider: Suppose you want to see roughly 13-15 bids per item that has a starting bid of $500 and an “accurate” fair-market value of $1,250. We would suggest that you set the bid increment to $50.

Here is the math for that: ($50 x 13 = $650 and $500 + $600 (first bid is at $500) = $1,100. Getting $1,100 for a $1,250 item is an 88% efficiency and would be considered a success in almost any auction.

The “non-formula” approach

Keep your bid increments as low as you can stomach and try to get people engaged in the auction. Have an item starting at $1,000? $100 does not have to be the bid increment – consider something less than that like $25! It’s not heresy. It is ok! If you get enough traction on the item, it will go for much more than $1,025!

Perhaps with a paper bid-sheet auction, some of these ratios (rules of thumb) and high bid increments make more sense. There is a high cost for a bidder to keep returning to a piece of paper to increase their bid. However, mobile bidding allows you to keep the bid increments lower as you should see people more willing and able to whip out their phone and up their bid. For those that don’t have a mobile – proxy bidding is their best bet.

Again, if you missed the link above, I wrote a blog on this here that explains more about bid increments and the hidden cost of paper bid sheets.

Of course, if you still have questions – just drop us a note! We would be happy to help.