He decides to have an online-only auction, utilizing a well-known online auction software provider.
In the following days, he photographs each piece of jewelry, writes descriptions and uploads the catalog. His terms dictate a 15% buyer’s premium; payment must be made by credit card within 24 hours of the auction close.
All the jewelry lots sell to the highest bidder. There are no minimum bids nor reserves. After seven days, the auction is over. All 200 pieces of jewelry have sold. The online auction software automatically charges each buyer’s credit card.
The auctioneer reviews the sales results — and is a bit disappointed. While a few pieces of jewelry sold for $120, $100, and $75, almost half the inventory (92 items) sold for 3 cents or less.
Thinking about those 3 cent, 2 cent and even 1 cent jewelry sales, the auctioneer thinks rightly so, “Would we rather it didn’t sell?”
Take one of the 3 cent sales: The buyer’s premium of 15% turns out to be $0.00. The credit card merchant charged $0.225 to process the charge, and the online auction software provider charged 5% (minimum $1.00) plus an event fee of $500 (about $2.50.)
A 3 cent sale constitutes a net loss of $0.03 – $3.725 = ($3.70.) A 2 cent sale costs the auctioneer ($3.71) and a 1 cent sale costs ($3.72.) The 92 lots earned the auctioneer about $2.00 total and cost almost $340 to process.
And these losses are in addition to the time required to photograph, describe and otherwise prepare the inventory for auction. In contrast, a no-sale costs nothing other than the time involved.
Using our numbers above, a lot of jewelry would have to sell for at least (P = 3.725/1.15) about $3.25 to break even. As such, any sale in excess of $3.25 would result in a profit.
What’s important for online-only auctioneers (and all auctioneers, for that matter) is to accurately calculate the cost of sale. Then, either only sell property with values in excess of that number or … lose money.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.