How To Win Internet Penny Auctions

A useful way of bidding in these auctions it to think of the auction price as number of bids rather than price. For example, a price of $20.49 represents 2,049 bids.

At a nominal internet price of $0.60 per bid, 2049 bids represent $1229.40 of income for the auction house, already way over the retail price of the item. This is why penny auction sites are popping up all over the place — it is VERY profitable for an auction house, even if they buy items at full retain in order to auction them off. For the bidders, the exact value of the item’s price is usually an irrelevant portion of the total cost. Instead of thinking that a winner will pay $20.49, the REAL question is how many bids it took you to get there. If you jumped in at the very last minute, you could acquire the item for only one bid ($0.60)! However, everybody else is also thinking the same thing, so everybody jumps in with only 3 seconds to go in the auction.

In order to successfully (profitable) win items, you have to estimate what the final quit price will be. For example, based on prior auctions, maybe $20. Then you have to figure out how much you’ll pay for the item (say 1/2 retail or $330). Subtract off the $20 auction price, and realize that you can spend $310 on bids (512 bids).

Now the ENTIRE game becomes when you will spend the 512 bids. Remember, 512 bids is only $5.12 of price spread, so your $20 estimate has to be that good. If you start bidding just below $20 and it goes to above $25.12, you have wasted all your money and will not win.  Realistically, you would only keep bidding if someone else does, too, so assume they pay for every  other bid.  That lets you “own” a range twice as large, or $20 – $30.24 in the example above.

Besides money, think about time, too.  Plan to spend lots of time (such as 9 pm until 2 am) to win an auction.  After watching a dozen or more $600-$1200 retail items, I found that the average bid time increment was about 3.5 seconds.  For a $70 final bid price, that represents 3.5 sec x 7000 bids, or 6.8 hours!  Are you ready to sit in front of your computer screen that long?

See my other blog entries about penny actions discussing marketing on Craigslist and analyzing the finances.