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Minimum Bid Auctions: A Guide for Nonprofits

Written by Adie M. | Feb 3, 2021 10:37:33 AM

A minimum bid auction is a popular fundraising option for nonprofits, including healthcare organizations like the Red Cross and faith-based groups like the Salvation Army.

Top Strategies for Minimum Bid Auctions

Here's what you need to know about minimum bid auctions and how they can benefit your nonprofit:

What Is a Minimum Bid Auction?

A minimum bid auction involves a non-negotiable minimum bid required to sell an item (e.g., a trip, car, or hot air balloon ride). The item remains unsold until this minimum bid is reached.

It's important to differentiate between a minimum bid and a starting bid. A starting bid is the opening amount your auctioneer begins with, but the item won't be sold until the minimum bid is met or exceeded.

For example, if a donor offers a $2,000 room makeover, you might set the starting bid at $500, but the auctioneer won't close the sale until bids reach at least $2,000.

Benefits of Hosting a Minimum Bid Auction

Minimum bid auctions help maximize your charity's funds without discouraging bidders with high starting bids. Lower starting bids can lead to higher final bids.

Research by Professor Adam Galinsky shows that online auctions yield higher returns when they start at a more approachable price point. By lowering the barrier to entry, you can attract more bidders and create excitement, leading to higher bids.

Setting a low starting bid might feel risky, but the minimum bid acts as a safety net, ensuring your organization raises the necessary funds while still engaging bidders.

Did you know? Auctions work by triggering our human desire to avoid scarcity. Auction items are unique and time-limited, which increases their perceived value. Once the auction ends, the opportunity to win the item is gone.

Is a Minimum Bid Auction Good for Nonprofit & Charity Auctions?

Yes! Minimum bid auctions help your organization raise funds and demonstrate to donors that you value their contributions by ensuring a fair return on the items they donate.

How to Set Starting Bids

While donors may provide the value of items ahead of time, your fundraising team needs to collaborate with the auctioneer to set starting bids and bid increments. Here are a few tips:

  1. Determine the Fair Market Value (FMV)
    Research what a bidder would pay if they purchased the item directly. Double-check the value shared by your donor with online research and expert consultations.

  2. Set Your Minimum Bid
    The minimum bid should typically be 30-40% of the item’s FMV.

  3. Set a Low Starting Bid
    Choose a starting bid that attracts numerous bidders but doesn't raise doubts about the item's quality. Find a balance that encourages engagement.

  4. Choose Smart Bid Increments
    Set bid increments low enough to encourage frequent bidding without making the jump between bids too steep. Smaller increments are especially effective in mobile and online auctions.

  5. Consult with Experts
    If you're unsure about setting bids, seek advice from experienced auctioneers or auction companies. They can offer valuable insights to maximize your auction's success.

Conclusion

Minimum bid auctions are an excellent option for nonprofit organizations. They help ensure a strong return on the items you auction, allowing your charity to raise more funds for your cause. Whether you opt for an online or in-person auction, this approach can drive successful fundraising outcomes.