Opening Bids & Increments for Silent Benefit Auctions

I get asked all the time "Where should be start and what increments are best for our silent auction?" Here's what I recommend.

The Immutable Laws of Silent Auctions:

- Silent Auction Bidders are "shoppers" looking for a deal.  Nothing you can do about it.
- If your opening bids are too high, "shoppers" will pass an item by early in the evening.
- If your increments are to low, you increase the odds you may never reach the maximum yield on an item. 
- The bulk of your bidding takes place in the last few moments of your silent auction.  There is no question that Electronic Bidding devices will increase yields.  A microprocessor will always be able to handle many more bids in those final seconds, compared to bidders fighting to write in a bid with pen and paper. 
1.  Establish the Fair Market Value(FMV) of an item.  This is key if the Donor has inflated the value of the item. (Shocking I know...)  What is it actually worth in the real world?  For this example, let's assume the Donor Value is $1000, but the FMV is $700.

2.  Keep in mind, the final sales price on silent items average around 70% of Fair Market Value(FMV).
3.  Silent Bidders like to think they're getting a deal early in the bidding.  It's a Bargain Mentality in the Silent Auction.  If an opening bid is too high, they won't bid.  Once the evening progresses, hopefully the excitement of bidding takes over and they are less concerned with a discount. But we need them to start the bidding ASAP in the evening, so get the ball rolling and don't scare them off with an opening bid that's too high.

4. A good rule of thumb for starting bids is 40% of FMV.  So our $700 item can start at $300. (Always round up/down to keep the math simple.)  Bargain Shoppers will be content with a $700 FMV item opening at $300.  Again, our expected selling price is 70% of FMV. On a $700 item we are targeting around ~$500.

5.  Our increments should be roughly 10% of the FMV.  Again, round up/down to keep the math easy.  Our example has FMV of $700 -- I'd likely round down to $50 increments to keep it easy.

6.   If you need to double check this theory...consider how many bids we will need to reach that target 70% in the bidding.  Ask yourself...A $700 item starting at $300 moving in $50 increments, needs how many bids to reach that 70% target of $500?  $300...$350...$400...$450...$500

7.  Getting 5-8 bids on a solid item is about average.  If it takes 20 bids to reach 70% of FMV, our increments are too low.  If it takes 3 bids to reach that same point, our starting bid is likely too high.

8. 2 Common exceptions to this rule...  

A) The unique item that is worth MORE than Donor Value (sports tickets selling for above face value, super hot retail items, amazing opportunities that might otherwise be in our live).  These items can start most anywhere and will find their max. selling price with no problem.   Anyone think an iPad starting @ $2.00 with $9.00 increments won't end up at $900 by nights end?  These items are pretty tough to screw up.

B) The unique item that has a high FMV, but needs a very specific buyer.  It's not likely to receive many bids. Start this item a bit higher, as we may only get 1 or 2 bids and we want them to really count.  Imagine you have an "Amazing Knitters Basket" filled with imported fine yarns, pearl needles and stunning patterns….assume it's worth every dollar of $600 at the local Knit-Wits Retail Store.  The issue is, how many hard core knitters are we likely to have in the room?  If they are in the room, they will recognize the value of getting $600 in knitting supplies for $400 and should be fine with a starting bid that may be closer to 60% of FMV.
Don't over think it.  Trust the room.  We are really looking to identify the Wild Cards and adjust accordingly.