Starting Bid vs Minimum Bid

Sometimes people get confused about two important auction terms, the starting bid versus the minimum bid. Auction terminology can be confusing, even for those who regularly help out with charity auctions, live auctions, silent auctions, etc.

Top Performing Auctions - Starting Bid vs Minimum Bid

Top Performing Auctions – Starting Bid vs Minimum Bid

And who better to explain the difference than one of the top charity auctioneers in the country, Sherry Truhlar of Red Apple Auctions. Sherry has a deservedly great reputation as an auctioneer who can help you double or triple your charity auction results, plus she offers some excellent free webinars on getting the most out of your charity auction.

In this guest article, Sherry describes how a starting bid is not the same thing as a minimum bid and why you want to start your live auction bidding at a much lower price than the minimum bid amount.

Why your auctioneer doesn’t care about Starting Bids.
(And neither should you.)

Today’s article applies to live auctions.  Over the last two weeks, I’ve received some version of this email from two different clients:

The donor of this item wants to set a minimum starting bid of $1500. What do you think? What starting bid would you recommend?

It’s not uncommon for non-auction people to confuse the terms “starting bid” and “minimum bid.”

Usually your donor is expressing “minimum bid,” meaning that he doesn’t want the item to sell for less than the amount he has stated.

Consignment items, for instance, almost always have minimum bids. The auctioneer cannot sell the consigned item for less than the minimum bid provided by the consigner.

But a minimum bid is not a starting bid.

To make this as simple as possible, here are my layman’s definitions:

  • “Starting bid,” also called “opening bid”: the amount suggested by the auctioneer to open the bidding. If no bidders are interested in bidding at that amount, the auctioneer will drop the opening bid until a bid is received.
  • Minimum bid, also called “reserve price”: The price at which an item can be sold. If the final bid does not reach the minimum bid, the item remains unsold. In other words, the starting bid can be less than the minimum bid, but the item cannot be sold until it reaches the minimum bid.

Auctioneers like to joke that it doesn’t matter where bidding starts; it matters where it ends. We don’t care about starting bids, and neither should you.

Furthermore, science has shown that the lower the starting bid, the higher the final price. You’ll raise more money if you open every item at a low amount versus whatever number you’re using now.

This is because auctions – silent, online, and live – are filled with psychological triggers. Understanding these triggers helps you raise more money.

When people raise their hand to participate in bidding, they become invested in the outcome. Once invested, these bidders become more reluctant to stop bidding. Hence, the lower the starting bid, the more “investors” you will have in your item, and the higher the final price will be.

Isn’t that interesting?

Though this concept has been long taught in auctioneering school, it’s also been scientifically studied. Professor Adam Galinsky of Northwestern University’s Kellogg School of Management studied eBay auctions. He found that starting an auction at a lower price almost always resulted in a higher sale price.

“Because you lower barriers to an auction, you get bidders to invest time and resources [in the auction],” Galinsky said. “They get trapped.” (Want more information on his research? Here’s an article on psychological factors affecting bidding.)

In other words, your bidder is on an emotional roller coaster, thinking, “I wasn’t all that interested in this trip to New Orleans. But jeesh, it was so cheap, I bid on it. And now that I’m bidding, I’m annoyed with that guy across the ballroom who is bidding against me. This is MY trip, not his!”

Lo and behold, the trip sells. People who were not even interested in going to New Orleans are now buying it.

Here’s the take away: When a donor starts to chat with you about an “opening bid,” get clarity. You might say, “I want to be sure I understand what you mean. You’re telling me that you don’t want your item to sell for LESS than $XXX, right?”

In my experience, that is what the donor is attempting to articulate. They don’t want their donation to sell for less than the number they’ve given you.

Don’t get bogged down in terminology with donors; it tends to confuse them.  Instead, agree on what you’re trying to achieve (i.e. “I don’t want to sell this for less than $XXX.”).  Once you’ve confirmed this, pass that information along to your auctioneer who can handle it seamlessly onsite.

About The Author
Benefit auctioneer Sherry Truhlar publishes “Benefit Auction Ideas,” a bi-monthly e-zine for auction chairs seeking to improve the financial results of their charity auctions. Get your own copy – and a F’REE gift! – at www.RedAppleAuctions.com.

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