You’ve probably seen the ads — “Get 90% discounts on factory sealed technology from Apple, Sony, and other major brand names.” Like many people, you’ve probably thought these advertisements must be part of some online scam. After all, we’ve all been taught to be suspicious of deals that seem too good to be true.
But what are these sites offering these insanely low deals? If they’re all scams, how have they been able to thrive for ten years or longer as ongoing businesses with loyal users?
In this article, we take you behind the curtain to learn about the mysterious world of penny auctions and what you need to know about them.
What Are Penny Auctions?
A penny auction is an online auction that uses only small bid increases — usually at or around $0.01. But what truly defines a penny auction is that each bid placed costs the bidder a small fee. These fees can range from $0.10 to $1 each, depending on promotions, offers, and the bidding site, and are nonrefundable at the end of the auction. (The exception? Auctions on DealDash, which allow losing bidders to purchase items at the “Buy It Now” price and get all the spent bids back from that auction with “Buy It Now and Get Your Bids Back” feature.)
This approach is designed not only to reduce overbidding and keep auction prices low but also to allow penny auction businesses to remain profitable while offering products at such low prices.
How do Penny Auction Sites Make Money?
Let’s look at an example to fully understand how penny auction sites thrive.
Imagine that a brand new, factory sealed wristwatch is available on a penny auction. The watch’s retail value is $300, but the auction begins at $0.00. Someone places an initial bid of $0.01, and the auction officially begins. Multiple bidders place multiple bids throughout the auction. Each time a bid is placed, a timer resets at 10 seconds. When the timer clicks down to zero without a new bid, the auction is over.
In the end, the winning bidder placed a bid of $9.50. They’ll pay that price, plus the cost of any bids they might have used to get there. If they placed 12 total bids at $0.20 each, that’s an additional $2.40 for a total of $11.90.
Those bids may have come from hundreds of different bidders, so each of them only has to pay a few dollars at most for the bids they placed. But the total dollar figure of all placed bids is $190 for that auction.
Penny auction sites like DealDash are able to turn a profit by buying brand new, but overstock products, promoted items, or liquidation stock at low prices. An item might retail for $300, but DealDash is able to purchase it at $140 and turn a profit via auctions. So for example, in the end the seller is able to reduce their overstock inventory, the customer gets a great deal, and the auction site is able to turn a profit while also keeping costs down for bidders in their auctions.
Is it All Too Good to be True?
Because many online readers who stumble into these sites haven’t yet learned the mechanics of how they work, they often assume that these penny auction sites are scams or too good to be true. But the fact is that there’s no magic trick these sites use to deceive users — they’ve simply adopted a new auction model that involves users paying a low fee for each bid they place. Think about membership-based retail stores like Costco and Sam’s Club, which operate under a similar model. You pay a certain price, such as membership fee, in order to access the deals, in addition to the price of the products themselves.
It’s also important to note that while many auctions end at a price well below the retail value of a specific item, others result in less dramatic discounts.
Like any industry, there have also been some penny auction platforms that use less than trustworthy tactics to try and inflate their bidding prices. But just because one restaurant uses frozen beef and calls it fresh doesn’t mean that all restaurants are a scam. DealDash enforces strict policies on bidders and auctions and continuously self-audits its processes to ensure there are no suspicious activities.
The DealDash Difference
One of the reasons DealDash has become among the longest-running and most successful penny auction websites in the world is that it has maintained a consistent dedication to keeping things as simple as possible for users. There are no dramatic gimmicks and no complex, hard to understand features. DealDash simply presents the items in a streamlined, intuitive bidding format and gives users the tools they need to bid smart.
Unlike other auction sites, DealDash also offers a money-back guarantee on their first bid pack purchase, plus a “Buy It Now” program that lets them purchase items from auctions they’ve lost at retail price while getting their bids back from the auction where they used the “Buy It Now” feature.
How to Win in the World of Penny Auctions
So how can you take advantage of penny auctions without being scammed? First of all, you want to choose an established penny auction platform that features a long list of reviews, users, and testimonials from real people who have had success on the site.
Otherwise, many of the same principles of standard auctions apply in penny auctions. Don’t bid more than you’re comfortable spending, put limits on yourself when it comes to your total bid price and how many bids you place, and do your research to ensure that you’re always getting the best possible deal when bidding.
If you follow this approach, you can turn penny auctions into a fun and effective way to access quality products at cheaper than retail prices.
