Brian Lee
Imagine you are a local small business owner. You understand that because you’re self-employed, you are required to donate to every fundraising initiative undertaken in your community. There are many, and you do.
But you can’t help noticing that some of these well-meaning organizations take your donation and dump a portion of it into a storm sewer. For anyone unfamiliar with how a silent auction works, people and businesses donate products or services that are bid on by attendees throughout the evening on bidding sheets. Later, successful bidders go home with their stuff and the fundraising organization keeps the loot.
These fundraisers — dances, quiz nights, beer and burger nights — all raise money for important services for our community. But many will feature silent auctions and that’s a problem because, from an economics perspective, most silent auctions are stupid. Here’s why.
Someone might donate an item with a $40 value. Often, that item will sell for less than its full value. Silent auctions attract bargain hunters so bidding interest often drops as bids approach an item’s full value. I’ve seen local photographers’ prints sell for less than the cost of the frame that holds them or items purchased at retail prices go for less than what the donor paid.
Still, the charity pockets some cash and the purchaser got a deal, so everyone leaves happy, right? Not quite.
Those who donated items to the cause might sheepishly question why they didn’t just donate the $40 cash. Instead, they saw their donation diluted by rewarding a cheapskate who took advantage of a discount purchase opportunity. A quick search on the web turns up why many silent auctions fail to maximize their return per item. Watch out, math:
According to economists, the ideal number of silent auction items is based on how many "buying units" are in the room. A buying unit is equivalent to one decision-maker. Couples count as one buying unit. Single attendees are each counted as individual buyer units. You want half as many auction items as buying units at your event. To figure out how many buying units you should expect, look at your guest list and add up how many couples and singles will be in attendance, then divide that number by two. Events with relatively low attendance or a bounty of donated items are going to suffer weak demand. That increases the probability that items will sell for less than their real or potential value.
So what do you do if your silent auction has too many items? The experts say bundle them. Put items together to make fewer biddable objects while making them more attractive to a wider market.
Those same experts also say that one of the most effective ways to boost the bidding is to encourage the consumption of hard liquor. The science of economics must be obeyed.