Ever been to a charity auction and seen those autographed sports items or a guitar signed by a famous rock star? Better yet, have you been asked to bid in a live auction on an African Safari or a trip to the next Super Bowl? Ever wondered, wow, how did these guys get that kind of donated item for their event?
More often than not in almost every case, those items are offered on consignment. What is consignment? In short, an item on consignment is provided by a third party to sell at your auction. These items have a base or reserve price set to sell and any money raised above that the charity gets.
Sounds like a great idea right? Have another company fill your auction with amazing items and avoid having to solicit donations on your own. Keep in mind that if the item sells at the reserve price, the charity gets $0 in most cases. Like most things in life, there is no such thing as a free lunch.
Before you decide to go this route, you need to understand the impacts that consignment items can have on your auction.
Let’s look at two examples and see how the math works (there are a lot of models here, so we will just cover a very basic example):
The consignment vendor provides your auction with two items: a signed football helmet from a famous sports star in your area and a guided African Safari for two people. You put the helmet in the silent auction and the safari in the live auction.
Let’s imagine how this might play out starting with the helmet. The reserve price on the helmet is $400 and the vendor has recommended that bidding start at $500 with $50 bid increments. You also set a buy-it-now price of $800 on the item. Your hope is that this will be a popular item that will get many bidders engaged in bidding, and that it will sell at or near the buy-it-now price of $800.
In the end, the helmet sells for $550 with only two bids on it. A bit of a disappointment, especially considering that your cause will only realize $150 in profit, with the $400 reserve going back to the consignment vendor.
With the African Safari, you start the bidding at the reserve price of $2,500 with the hopes that it will go for thousands more. You haven’t hired a professional auctioneer and your step-in volunteer is struggling to get many bids on it above $3,000. Finally, the item settles out at $3,500, netting only $1,000 for your organization.
On the surface, consignment items can look deceivingly fantastic. In our auction scenario with the two consignment items, they generated over $4,000 in new auction revenue for the charity. If our goal was to simply increase total auction revenue, this could be an easy way to do it. However, we all know our success depends on what we ultimately put in the bank (the net revenue) and in this case, these items pulled $4,050 out of your bidder's pockets but only delivered $1,150 to the charity. To add insult to injury, most bidders don’t even realize that this is the case, thinking that they have donated a substantial amount to support your cause.
So have I provided an extreme example here? Not really, as we have seen it play out this way in our experience at multiple auctions. Are consignment items ever a good idea? Sometimes, but only in specific circumstances. Here are our guidelines on how to consider and use consignment items to your charity’s benefit:
- Consignment items are not a great idea for a silent auction.
Silent auction bidders are “shoppers” and in most cases “bargain hunters”. They are looking for a deal. They know what many items are worth and are looking to purchase things in an auction at or below their fair market value (FMV). The only way to avoid this behavior is to have items in your silent auction that can’t be found elsewhere (one-of-a-kind items). Most consignment items are easily found on the Internet and their values are simple to determine. In the case of the football helmet, assume a quick online search reveals multiple helmets similar to the one on consignment, that can be had for anywhere from $400 to $500. It should come as no surprise that the helmet would not go for much more than this amount. And even that is a stretch for most silent auction bidders. If you believe that you must have some consignment items in your silent auction your best bet will be to ensure these items are particularly unique and cannot be acquired elsewhere. A great example of this is personalized items or customized experiences (e.g. meet the football star, take your photo with them, and then get him to personalize the signature on the spot).
- Use consignment items sparingly in your live auction.
These should be a “once in a lifetime” sort of items, ones that can generate a “wow” factor and incentivize some bidding. These items can work with your live auction crowd, whose competitive spirit (and often pocket books) will allow them to bid on items above and beyond their value. We would recommend that you use 1-2 max of these items to engage your crowd and add some excitement to the live auction. If you use too many consigned items, you risk losing charity revenue from your bidders who would have been just as willing to donate a similar amount directly through an appeal.
- Don’t hide behind the reserve price.
When you auction off these consignment items, make it clear to donors what the charity will get from them. I have seen many angry bidders who come to realize later that their $4,000 purchase only generated $1,500 for the charity. I have seen some argue that they would have been more than willing to write a $2,000 fully deductible check instead. Keep your bidders happy and informed.
Is it too good to be true?
I suppose it could be in most cases. There are plenty of companies out there that will tell you that they will significantly increase your top-line revenue and remove the huge burden of having to acquire all of these items on your own. It can sound so enticing to let another company come in and provide all of the items for you. They do all of the work and your charity will get 30-40% of the proceeds. But always remember that these companies are running a business. These services and items are not being offered out of the kindness of their hearts. They are making a profit on your potential donors. If they weren’t, they would not be calling on you.
It is not bad to make money, and we firmly believe and recommend that you must invest in your auction if you want it to grow. The real question is, what will generate the best returns on your investment? At Handbid, we always will show you how your dollars invested in our services can result in higher net revenues to your charity. Ask these consignment providers to do the same.
Tell us what you think of these consignment vendors and their items. Have you thought about using them in your auction? Have you done so? What has been your experience?