In my quest for financial freedom, I saw that one of the best business models is an internet business. Aside from the fact that most internet businesses are not both capital and inventory-intensive as compared to traditional businesses, they are also very portable which means you can carry it wherever you are in the world as long as there’s an internet connection.
In this article, I will discuss one internet business and I’m referring to penny auctions.
What are Penny Auctions?
Bidding fee auctions or more commonly known as penny auctions are all-pay auctions in which participants will pay a non-refundable fee in the form of bid packs in order for them to place a small incremental bid.
How Penny Auctions Work
Penny auctions work by attracting participants to buy items at very low prices. In order to participate in the auction, a person needs to register an account and purchase bid packs from the auctioneer.
Items being auctioned are put into a timer to give time for bidders to place their bids. When the time expires, the last person to have placed a bid wins the item and also pays the final bid price. Once the final bid price of the item was paid by the winning bidder, then the items will be shipped and the shipping fees are shouldered by the auctioneer.
How Auctioneer in Penny Auctions Profits
Yes, it’s true! You can buy an iPad 2, normally priced at Php25,000 at an incredible price of only Php250 depending on what price the auction ended. That’s 99% discount! That’s just one of the great things about penny auctions but wait… let’s examine how the auctioneer profits from this kind of online business.
An Example from PisoBid
Since PisoBid.com is the most famous penny auction site here in the Philippines, let’s examine how the auctioneer profits despite the incredible low retail prices of their items.
As mentioned above, a participant must purchase bid packs from the auctioneer in order to participate in the penny auction. In PisoBid, there are six bid packs denominations available. The larger the bid packs you buy, the more discount you’ll have in purchasing your bids.
- P300 worth 10 bids or equivalently, P30 per bid
- P600 worth 25 bids or equivalently, P24 per bid
- P900 worth 50 bids or equivalently, P18 per bid
- P1,000 worth 100 bids or equivalently, P10 per bid
- P2,000 worth 250 bids or equivalently, P8 per bid
- P3,000 worth 500 bids or equivalently, P6 per bid
Each bid pushes the price of the item by more than Php0.01 (bid increment) and when the time is about to expire, each bid received will push the timer 10 more seconds to give more time for other bidders to bid. This is perhaps the best feature of a penny auction site! The more bids to the item, the higher the profits of the auctioneer!
Let’s take for example an iPad 2 16GB 3G WiFi which retails at Php28,990 and sold to the highest bidder at only Php245.62. The price started at zero and bidders bid to win the item.
iPad 2 16GB WiFi 3G
Image Credit: PisoBid.com
Scenario 1: The lowest profit the auctioneer earns
If all bidders bought the Php3,000 worth of bid packs so they can purchase the lowest price per bid of only Php6 per bid, then the auctioneer earns:
-> The total bids rendered are 245.62 divided by 0.01 (bid increment) equals 24,562 bids. Now since each bid costs Php6, then we must multiply it by 6 equating to Php147,372. Since the wining bidder will also pay the final price of the item, then he or she must pay the final price of P245.62. All in all, the auctioneer earns Php147,372 plus Php245.62 equating to Php147,617.62. Compare this amount to the original retail price of only Php28,990, the auctioneer profited 409.2%, the minimum profit for this item.
Scenario 2: The highest profit the auctioneer earns
If you’re amazed on scenario 1, wait until you see scenario 2. If all bidders bought the most expensive bid, the Php300 bid pack which retails at Php30 per bid, then the auctioneer earns:
-> As in scenario 1, the total bids rendered are 245.62 divided by 0.01 (bid increment) equals 24,562 bids. Now since each bid costs Php30, then we must multiply it by Php30 equating to Php736,860. Once again, since the wining bidder will also pay the final price of the item, then he or she must pay the final price of P245.62. All in all, in this scenario, the auctioneer earns Php736,860 plus Php245.62 equating to Php737,105.62. Compare this amount to the original retail price of only Php28,990, the auctioneer profited 2,442.6%, the highest possible profit for this item.
Of course, not all bidders will buy the same set of bid packs. Some will buy Php1,000 while others will buy Php600. The bottom line is, in the item that we just examined, the auctioneer profited somewhere in between 409.2% to a maximum of 2,442.6%. This is just for one item alone. How much more if the auctioneer offers a lot more items for bidders to bid? Now, that’s what you call a great online business!
Tips to Smartly Bid in Penny Auction Sites
– As in any game, you must be aware of the terms and conditions before bidding. Read these materials to better understand how the auction works especially since this involves a non-refundable money that you spent on bidding.
– Create a threshold of how much you can spend on these auction sites. By doing so, you can control your spending habits and be able to avoid overspending. Do not buy bids more than you can actually afford.
– The best thing to do in order to win the item you’re bidding is to monitor the bid price of it and this involves a lot of time especially if the penny auction site has attracted lot of bidders already. If you are really determined to win the item, then be ready to spend a lot of time monitoring the movement of the bid price.
– Read forums and blogs for feedbacks on these penny auction sites before you participate. Penny auction sites can be manipulated. One scenario can be that the auctioneer themselves create fictitious accounts to bid for the item in order to increase the price. Another scenario can be that a group of people can form a team to bid in the item. Make sure also that items that are won are indeed shipped and received by the winning bidders.
Now that you’ve now how profitable penny auction sites are, if you are planning to start your own penny auction site, the best way to make it successful is by marketing it to attract more bidders. The more participants in the auction, the better profits for you. Having known how penny auction works, the one who conceptualized this online business is surely a genius!