Education & Training

Before the Auction: Determining Opening Bids

by Nancy L. Hix

You want your auctioned products to earn you a profit. Well, some of you want to clean out the garage by listing the stuff on eBay, but admit it--you also want to line your pockets with a little cash. And if you're a high-volume seller or run a small business, the need for profit is even greater.

When listing products at online auction, the success of your sales begins with determining the opening bid price. Where you start the bidding is pivotal to whether your products will sell. To follow is a discussion of setting the right opening price so your auctions close with at least one successful bid.

The Object of the Game Is...

Successful online auction selling is all about making more for a product than you paid for it. Not many serious sellers list auctions and hope the products don't sell. The whole object of listing an online auction is to exchange goods for cash. Some auction sellers scarf up treasures at yard sales for a quarter and earn great profits, while business sellers typically purchase goods at or below wholesale to list online. Whether you want to break even or make a profit, the object is the same--to attract successful bids. One way to do that is with a strategic minimum bid amount. This requires a little research.

Know Your Price Floor and Price Ceiling

Your product might sell with only one bid, so think of your minimum bid as your asking price. You don't want to price your products so high that nobody bids on your auctions, but you also don't want to incur losses or you won't be a successful online auction seller. Where you set your opening bid is an important online auction strategy. Two terms to consider here are cost and price:

  • Cost is the total amount of the expenses you incur to obtain the product, create your auction listing, and sell your product.
  • Price is the selling price per unit that your customers will pay for it. Researching closed auctions is a great way to determine a competitive price. Doing a completed auction search allows you to see what customers are willing to pay for the same (or similar) product you're selling.

Two other terms define the least amount you can charge without taking a loss and the most you can charge while staying competitive:

  • Price floor is the lowest amount at which you can offer your product and still cover your cost and expenses. If you set the price at or below cost, you should have a specific intent--like wanting to get rid of something that possibly makes you ill just by looking at it.
  • Price ceiling is the most that a customer will pay for the product. Think of the price ceiling as the customer's perceived value of the product. Several factors create this perception, including the product's popularity and the quality of the one that you're selling, as well as the comparison your bidders make between you and your competitors.

Now, consider how much you paid for the product. Add in any other expenses, such as your auction site fees, and figure out how much you hope to earn from the listing. This all helps you determine your starting bid. A few circumstances might tip this amount in either direction.

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