How Do Penny Auctions Make Money

The Penny Hoarder Staff

Updated November 18, 2016

The following is a guest post from Amanda Miller at GetOutofDebt.org

The Penny Hoarder: I've always wondered if it was possible to make money by participating in penny auctions and then reselling the items you won on Ebay or some other forum. Thank you to the folks over at GetOutofDebt.org for offering up their thoughts….
Penny auction sites are skyrocketing into the peripheral sites of digital users left and right.

If you've never used or seen a penny auction site, let me break it down for you: there are various items, some big ticket and some small ticket, that are offered up for auction for "only" pennies. Literally, $0.01 to $0.02 starting bid. Users then place bids to try and win the item, each bid is a penny. Sounds easy and cheap doesn't it?Wrong!

What many don't know is while each bid raises the price of the item only by $0.01 the cost of a bid can be up to $0.90 on some sites. – Source.

That means for every "penny" you bid you're adding up a high bill in the cost of bids. Each time you bid a "countdown clock" is reset. Usually the clock resets at a low number, let's say, 12 seconds. 12…11… For the final 10 seconds of the countdown the clock turns red which signals to bidders that time is running out, quick, bid! Ca-ching. $0.01. Another 12 seconds….

At first, bidders may ask to themselves, "Oh, what's a few dollars, right?" What they don't realize is these sites can become very addictive and they can find themselves running through thousands of dollars very quickly.

At first these websites reminded me of digital slot machines. "Oh, just one more pull… just one more…." Then I realized, slot machines actually pay out from time to time to different users at different amounts – not everybody gets the jackpot. But that's what happens here, one jackpot, one winner, the rest are just throwing their money away. Losers can apply their failed bid credits toward purchasing the item auctioned at full retail price.

I realize now, it's not about the product, it's about the win. Human's struggle and addiction for power and success can be found bundled into these websites.

I sat down today to watch an auction take place on Beezid.com. For 40 minutes I watched the price of a brand new iPad 2 go from around $18 to $90. In those 40 minutes alone, 7200 pennies had been bid. Let's do some math, shall we? Beezid offers "bid packages" from $0.55 to $0.90 which means in those 40 minutes Beezid racked in between$3,960 to $6,480 in bids. – Source.

At the end of the bid the iPad "sold" for $90.76. Seem like a steal?Bizeed earned anywhere from $5,082.56 to $8,259.16 for that one iPad (including the final $90.76 due for the item). At a retail value of $499.00 that's 10 to 16 iPads!!

Have a look for yourself. I captured video of the auction within the 40 minutes I watched it and sped it up to give you a quick glimpse of what these auctions look like.

Video about Are Penny Auctions Sites Worth It? RIP-OFF Alert! by @GetOutOfDebtGuy from GetOutOfDebt.org

The psychology behind these sites fascinate and frustrate me all at the same time. While watching the auction I saw users bid continuously within 2 seconds, only restarting the clock to 12 seconds each time. For what? To jack up the price to scare off others? At one time I saw a battle between two users, unnecessarily jacking up the price …. by a penny at a time. This isn't poker, you can't raise them $20 and see if they'll call.This.Is.A.Penny. I understand the want to be the last bidder but why not wait until the end of the countdown instead of mindlessly throwing away bids all in one fell swoop.

In the end many user's bids equate to a price higher than actually buying the item. Which makes it obvious that the allure of these sites is not the products people are "winning" but the struggle to win, the struggle to be the best.

I can't help but think if any of these users are working undercover for these sites trying to entice actual bidders.

Let's say for the sake of argument that the winner swooped in and won this iPad on their first bid (which is false because the winner made many,many bids) and only paid $90.77 for it. There's still $4,991.79 to $8,168.39 spent from other users who took home nothing. Nada. Zilch!

What I can't seem to wrap my brain around is why some of these sites are actually accredited by the BBB. Penny auction sites such as BidCactus, SportsBiz and PackageForMe have actually been accredited with a rating of an A- and DealDash with a B+ rating. With the BBB accrediting these sites can one really "start with trust" (as the tagline of the BBB reads) when these sites are such a huge rip-off?

The auctions are exciting. Watching that clock countdown. Being so close, on the edge of winning. Adrenaline starts racing. "This could be mine!!!" … But for what? For what price? For the low-low price of a few pennies? No. Aside from the one "winner", the rest of the users loose, sometimes thousands of dollars.

If you know what's good for your mental well-being and your wallet's contentment, stay far, far,far away from these money pits.

Have you ever engaged in a penny auction site? Have you ever actually won an auction? How much have you spent on worthless bids? I'd like to hear your thoughts and stories on this matter. Please leave a comment below!

Source: "Are Penny Auctions Sites Worth It? RIP-OFF Alert!"

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