Mistakes That will doom Your Penny Auction Startup

Written by MakingCents | 06 May 2012

TALK ME OUT OF STARTING A PENNY AUCTION.. PART II

In this continuing discussion about starting a penny auction, I'd like to address 5 mistakes that could be fatal to your site. Some of these have been noted in other articles, but I thought we could put them together here in no particular order.

1. No Due Diligence Performed -

Potential owner sees some great ending auction prices on large sites like Quibids, Beezid, or Skoreit, and jump in head first with a shallow pool of knowledge about penny auctions. See Part 1 in this series. To survive, you need to understand a lot about shipping, advertising, bidder mentality, win limits, auction types, frequency, and bidder resources.

2. Giving into Bidder Advice -

This is your business. Develop a business plan, and stick with it until you see that it needs changed. Bidders are in this for their profit, not yours. Listen, but don't always implement. What one bidder thinks is a bad business decision, others may put up with. They think they know how to run a site, but you see which side of the industry they stay on. They will give you advices, on auction types, frequency, value, win limits, win substitutions and so on. If you did the things pointed out in #1, then you should have developed a good business plan to work with.

3. Lack of budget and reach for Advertising -

A new flow of bidders in to your site is key to success. Advertising is the Lifeblood of the Industry. Get creative and spend the money needed primarily outside the penny auction community.

4. Value and Frequency of Auctions causes you to be over-extended - Your business plan should alway include a budget of what you can spend based on the size of your member base, and activity on the site by those members. Higher value items do not bring more bids or bidders to your site. Increasing the value of items, and number available is a huge request by bidders. (See point number 2 above). These should be increased with proportion to your member base and activity, as should your budget for advertisting.

5. Payment Processor Single Point of Failure-

All penny auction sites should have at least two payment processors for bidders to use. At their discretion, payment gateways like PayPal, Autorize.Net, AlertPay, DalPAy, may decide your business plan, model or such is inadequate and decide to "hold your funds" or suspend their services to you altogether. If you are single threading in regards to a payment provider, you don't have any way to get money from your customers. Have at least two, maybe three.

6. Complete Under-funding -

If you are running a site where the purchases of bidpacks are funding your shipping of items, you are completely underfunded and should close down! Many sites have tried this, and they all failed eventually, some with lawsuits, and fraud charges.

7. Getting caught Shill bidding with/without bots -

This activity is illegal in most locations and can get you up against fraud charges. Some bidders are very experienced at what they do, and can spot this activity in most cases pretty quickly.