What Are Penny Auctions?

Penny Auction (or Bidding fee auction) websites are auctions websites where users can bid on items such as laptops, TVs, cash and even cars. The winners walk away with item for a faction of the retail price. Two examples of penny auctions websites are MadBid.com and swoopo.com

How Penny Auctions Work?

Penny auctions are auctions where bidders increase the price of the item by 1 penny every time they bid. Each bid requires the use of bid credits. Using MadBid as an example, a bid credit can cost anything between 10p to 30p. In these penny auctions there is a timer associated with each auction. The timer is generally between 15 seconds and 2 minutes. When a bid is placed the timer starts. Each time a new bid is placed the timer is reset and starts counting down again. The auction ends when the timer reaches zero and the winner is the person who was last to bid. The final price of the auction is generally a fraction of the retail price.

I'll be using GBP (£) in calculations but the item is the same regardless of the currency.

Example: Recently on MadBid, a Nintendo 3DS sold for £19.47. Which is nearly 90% off the current Amazon.co.uk price (£180).

How Penny Auctions Sites Make Money?

Auctions end a significantly lower price to what the item is actually worth. So you might think they are losing money but they are definately not. Using the Nintendo 3DS example, the auction made the penny auction website £798.27, 4 1/2 times the retail price. Here's how that is calculated:

There is one bid for each penny in the auction's final price, £19.47 = 1947 bids. In this auction each bid cost 4 credits, 1947 x 4 = 7788 bid credits. Each of these bid credits cost a minimum of 10p each. The total cost of the credits is £778.80. Then the winner of the auction must pay the final price, £778.80 + £19.47 = £798.27. So the site ends up selling a £180 product for $798.27 and that's how they make their money.

How To Win? (What Everyone Wants to Know)

There is only one way to win and that is to be the final bidder on the auction. Which easier said than done. You then have to make sure what you win has a greater value to you than what you've spent on credits, else you would have paid more than you should have for the item and it would have been cheaper to go out and buy the item

Sorry, the above paragraph is the obvious and is really no help at all. But it's the truth. By just looking at a penny auction site that is the only way to win.

To actually have a good chance of winning an auction you need to study the past auctions.

Continuing on with the Nintendo 3DS example, one day in the last week it finish at £0.40! Even the auction site lost out there because they would have only taken £16.40. The site actually loses money, however in the long run they always win. Situations like this don't often happen but if you can figure out when they do, you can win.

Another example using the 3DS is when it sold for the highest price. This was £54.72 (making a massive £2,243.52 for the auction site). You might think you've got no chance of winning this auction and not losing out but imagine if you started bidding at £54? You could have got the 3DS for as little at £65, less than half the retail price.

... so How To Know When To Bid?

This is THE question. Knowing this would transform penny auctions into a way of making money. Unfortunately, finding this answer will be incredibly hard (if not impossible) because of all the factors involved.

This question is something I am working on myself. Right now I am studying the final prices of auctions on the MadBid UK auction site to see if there is a formula to winning, and I will share my findings in later articles.

When NOT To Bid!

So far I have collected a little data and a couple of points stand out straight away.
Do not bid on a bank/public holiday! More people are at home and so more people are on their computers bidding.
Do not bid in the evening before a bank/public holiday or a weekend. Similarly to the first point. When people have a day off the next day they will stay up later and keep bidding.

If you have an thoughts, tips or strategies you'd like to share please do.