Making Auctions Work Best for Corporate Sponsors and Fundraisers
By: Jon Carson, 05/20/05

There are estimates that today between 100,000 and 300,000 auctions are held every year. But ask any development professional about fundraising auctions and you will almost always get a response that is close to "can't live with them, and can't live without them."  Why? Because they take a lot of work and can be quite inefficient. But on the flip side, they also engage donors and often raise significant amounts of money. Let's look at the fundraising auction model, as it currently stands, to understand why it works and where there are inefficiencies.

Supply Inefficiencies: The typical fundraising auction offers little in the way of marketing value to corporate item donors, making item solicitation a chore.  And, the number of new non-profit organizations incorporating every year is growing at almost twice the rate of giving. Most organizations offer a small quarter page ad in the evening program which has a limited distribution and in which few item donors see much value (think yearbook advertising). This undersells some of the benefit that the organization can provide to item donors (and sponsors).

Demand Inefficiencies: Bidding is limited by two key variables- the number of people who have purchased a ticket to the event (almost always much less than the total constituency), and the time footprint of the event, often less than four hours. Moreover, an auction is typically competing with the socialization objective of the event, which is to make sure that when Mr. and Mrs. Smith leave to go home they feel connected to the organization and more ready to make a contribution for the new capital campaign or annual fund.

After all is done, few organizations have a system to capture all the information around bidding activity and item popularity. This results in little institutional learning to optimize in future auctions around best and worst practices, best categories, multi-year trends, optimal opening bid levels, bid increments, and overall size of the catalogue.

Still, notwithstanding all of the above, fundraising auctions are ubiquitous because they work. In essence fundraising auctions have three overwhelmingly redeeming virtues:

· They consistently raise non-trivial amounts of money
· They are highly entertaining for the participants
· They involve an exchange of value - making them one of the few truly "pleasurable" ways a donor has of giving

Auctions are also one of the primary ways non-profits have to tap household spending budgets ($7 trillion in size and 66% of GNP), as opposed to charitable giving budgets ($220 billion, 2% of GNP).

The Power of Online

When you move an auction online, you reduce many of the inefficiencies and leverage the strengths. Of all the surviving models from the dot com bubble, the generic auction model has been perhaps the most successful when put on the internet. For fundraisers, it doesn't matter whether you simplify the logistics and hold a purely virtual event or whether you overlay the online auction with your physical event, you will enhance both supply and demand as well as creating a deeper connection with your constituency. Moreover, unlike the real world, where there are many choices for fundraising with special events (golf outing, 10K walkathon, seasonal gala, wine tasting), in the virtual world there is only one way to hold a special event that raises money - online auctions.  And the good news is they are much less time consuming since the only key activity is getting items.

Increased Supply: Item solicitation is improved in a number of ways. First, the organization has a much better (and quantifiable) value proposition to take to corporate supporters. For starters, the organization can give every donor a clickable link and logo in the online catalog and in the emails, which enables them to easily quantify size and frequency of exposure to consumers via email.  This is also true for sponsors who can now see a sizeable number of guaranteed impressions to an important demographic - an often affluent donor who cares about a particular cause.  For commercial donors and sponsors, an online fundraising auction is a powerful cause marketing platform that can highlight the donor in a way that the constituency will value.

Increased Bidding:  Bidding is enhanced when a nonprofit takes advantage of its email list and current website traffic to drive bidding. This expands the available bidding pool to a much broader audience than just the attendees in the room. Moreover, for those worried by email spam pushback, email open rates have tended to be quite high for auctions and constituent blowback almost non-existent. Donors have a higher tolerance for auction-based emails because online auctions are entertaining. There is a gaming aspect, whether you are actively bidding or just watching.

Bigger Marketing Footprint: Moreover, because data shows the typical online fundraising auction performs best when it is run over 3 - 4 weeks, this greatly expands the marketing footprint of an event from hours to weeks, thus making a bigger impact on the donor base vs. the other causes they support. This should not be overlooked in a world where the number of new nonprofit incorporations is growing faster than the rate of charitable giving, making the fight for "share of mind/share of wallet" with donors intensely fierce. In the end, auction dollars are important and valuable, but auctions should be part of a bigger overall strategy to engage donors and build loyalty for the bigger ask.

Auctions are perhaps the single most pleasurable way to give because there is an exchange of value. The Economist recently ran a special section on charitable giving that cited research indicating that when there is an exchange of value donors have a higher propensity to give more.

Online fundraising auctions are working, and over time they are only going to get better as organizations get smarter and learn about what works and what doesn't. There's no magic here - it's basically about math.  Online auctions expand the ability of the organization's donors to place bids (more bidding= more demand) and enable organizations to offer a better, more quantifiable, value proposition to item donors and sponsors (more items = more supply).  And they dramatically expand the marketing footprint for the organization as a whole (leading to increased visibility and overall donor engagement).

Add it all up and you have more money being raised and deeper donor engagement. While only a small fraction of the total universe of organizations that currently hold auctions are using the net to enhance their outcomes, the benefits are so overwhelming that it shouldn't be long before the vast majority of fundraising professionals will be taking advantage of the internet - and the competitive edge it can provide.

About The Author:

Jon Carson is CEO of cMarket, an online auction fundraising services company based in Cambridge, Massachusetts. For more information, click here.

You may contact the author at: jcarson@cmarket.com