CONSIGNMENT ITEMS IN LIVE AUCTIONS
“To Buy or Not to Buy – That is the Question …”
When I first became involved with Fundraising Auctions, I was told by an established auctioneer that, “The sale of Consignment Items will always significantly raise the take from an auction.” However, when I examined this statement more closely, I realised that it was actually self-serving from his point of view, but usually NOT the best course for the charity to increase it’s net revenues.
So, I now advise clients to avoid almost all Consignment Items; with a few exceptions, which I will discuss later.
First, why am I now against most consignment items? Well, the obvious answer is that when you sell donated items, then ALL of the bid money is your profit. When you sell consigned items, you only receive a fraction of the bid price.
But what if you have difficulty in sourcing high value donated items? Well, in many cases, you must look closely at the difference between the Gross and the Net receipts for your answer ... you might be surprised at the result !
Imagine that your auctioneer, who works on a 10% commission of your Gross, says that he can provide a trip to Italy, “for only $3,500.” He then auctions the trip for $5,000 to one of your major supporters in the live auction. The auctioneer takes his 10% commission, plus the $3,500 cost - leaving you with only $1,000 from the $5,000 bid. The auctioneer is very happy because the Gross is higher, so he makes good money there; plus, he will have made a profit from the $3,500, which will always be more than he actually paid for the consigned item.
Also, your supporter thinks that he has donated $5,000 to the cause and that he can claim a $5,000 tax deduction – but clearly neither of these assumptions is true. And, you only gained $1,000 from a $5,000 bid ! No donor will be happy if he finds that you only received 20% of his bid price – you would both have done better if he had made a straight cash donation.
By contrast, let us imagine that you were able to obtain a donated week at a resort in Florida. You only have to obtain a bid of $1,100, to receive more money from the sale of this item than from the trip to Italy. Also, you will always have more bidders on the lower priced items than the high priced ones. Your Gross might be less, but your Net will be higher. Clearly, you must always concentrate on the Net, not the Gross, outcome from your auction.
I said that I do believe there are a few worthwhile exceptions, where Consignment Items can be of great value to your live auction.They can sometimes add variety to your item list – but remember that they MUST always make financial sense. I offer my clients a few high quality items, but at only 20-35% of what I expect them to raise in the live auction. In our Italy example, the cost to the charity was 80% !! Also, I provide my clients with proof of how much these items usually sell for, when I auction them.
If you do decide to include consignment items, always check that they are on a “no risk” basis. In other words, that you have no liability for them if they do not sell, or reach an agreed minimum bid. NEVER pay for any consignment item before your auction. ALWAYS pay for it from your proceeds, after it has actually sold. Also, always ask for proof of previous bid prices for your consigned items.
One option for dealing with consigned items is to find sponsors for these items. You can often find donors who do not have appropriate items to offer for your Live Auction, but who are willing to “Underwrite” individual items. For example, hospital doctors, lawyers, realtors, etc do not have tangible items to offer. However, they can pay for the cost of the consigned items, and you advertise them as being from the donors. Suddenly, you have high value, difficult to obtain items at no cost. Again, remember only pay for any consigned items after the auction; and do not lose sight of the Gross v Net comparison !