Note to all Affiliates:
In early 2016, K-BID went through the process of setting short and long term company goals. As you would expect, a great deal of time was spent discussing the affiliate network and the website --- our strengths, weaknesses, opportunities and threats. K-BID staff and affiliates have so much to be proud of…. what we’ve accomplished together over the past 2.5 years is pretty amazing. Our affiliate network is stronger and more motivated than ever. Our reputation for conducting auctions with integrity is as solid as ever. Our affiliate network is a cohesive unit that recognizes the benefits of sharing information and working together.
The first step of the planning process was data analysis. We needed baseline numbers for our key performance indicators (KPIs) to measure our progress in meeting goals. The information gleaned from the data was interesting, useful and confirmed growth in several key areas --- auction sales, the number of lots selling above $500, the number of affiliates experiencing year over year sales growth, etc. While mostly positive, there were a few troubling findings that surfaced. We wanted to bring these to your attention and provide you with our plans to improve performance in these areas.
Finding 1: K-BID’s lot sales percentage (# of lots sold/ # of lots offered) has fallen significantly in the past couple years. Prior to 2015, the percentage of lots sold averaged about 95%. In 2015/2016 our lot sales percentage came in at 85% --- which means 1 out of every 7 lots didn’t sell.
Finding 2: 44,142 lots in the first 3 quarters of 2016 didn’t receive a single bid. While there’s no good reason for a lot to have zero bids at the close of the auction; it’s especially difficult to accept when the reason for a no bid lot is due to bidders perceiving the lot as having $0 value. Sadly, this is the case for 90% of the no bid lots during the first 3 quarters of 2016. • 66% (29,300 lots) of these lots had a starting bid of $2 or less. • 90% (39,728 lots) of these lots had a starting bid price below $10.
The top reasons lots fail to sell:
- Low lot values
- Reserves set too high -- the average variance between the reserve amount and the high bid amount when the reserve was not met was 45%.
- Starting bid used as a reserve
- Lot misrepresentation – Disclosure Issues
- NO SHOW bidders -- 75% of NO SHOWs were for invoices with high bids under $25. More than 60% of the <$25 invoices were for high bids below $10.
The four areas we intend to focus our attention on in the first 6 months of 2017 are:
- Restoring the lot sales percentage to 95%
- Decreasing the no bid lot percentage from 12% to 5%
- Decreasing the number of lots selling for a high bid less than $10.
- Reducing the variance b/w the reserve and the high bid for reserve not met lots from 45% to 20%
New and/or Updated Policies Effective 1/1/17
The intent of the following three policies/policy updates is to get K-BID back on track when it comes to lot sales. We need to increase the percentage of lots that generate revenue by receiving the highest bid possible, given the asset’s condition. In order to get the highest bid possible, the lots need to be valuable enough to allow for competitive bidding.
Reserve Policy - Minimum reserve $100
K-BID’s stance on reserves has always been the same…. we strongly discourage using them. Prior to 2008, when company auctions were the only auctions appearing on K-BID.com, it was a no reserve website. After the affiliate network began, K-BID reluctantly agreed to allow affiliates to sell with reserves --- as long as the use of reserves was kept to a minimum and only used for higher valued assets ($2,000+). Unfortunately, in the last couple years the number of lots published with reserves between $5 and $100 has ballooned – this is clearly not how we intended reserves to be used. While a minimum reserve of $100 is still very low, we felt it was a good place to start to allow both affiliates and sellers time to develop a level of comfort with trusting the auction process.
As of 1/1/17, the OAS software will not allow a reserve below $100 to be entered. However, affiliate’s will be able to lower the reserve to less than $100 during the course of the auction. The sole intent of allowing reserves to be lowered to under $100, is to ensure sales are not lost if the high bid hits $95 or $96, but may not quite clear the $100 mark. It’s important for affiliates to honor this intent when lowering reserves below $100.
Variance between the reserve and the high bid is a concern.
At this time, K-BID will not charge fees for lots that fail to meet reserve. However, a 45% variance between a lot’s reserve and the high bid at the auction close, indicates affiliates aren’t taking the time to determine a lot’s auction value before agreeing to a seller’s reserve. It’s important for both affiliates and sellers to understand the differences between a forced sale (auctions – asset sells to the high bidder at a specified date and time) and an orderly liquidation (seller sets the price and waits until someone agrees to pay the set price). Each type of sale has pros and cons.
PROs of Forced Sales: The asset will be turned into cash quickly - The seller’s involvement in the sale is minimal
CONs of Forced Sales: There is no assurance of the sale price
PROs of Orderly Liquidations: The seller sets the sale price of the asset
CONs of Orderly Liquidations: There is no assurance of when or if the asset will sell. The seller has to commit either time or money to respond to calls and meet with potential buyers.
Sellers often want/expect the best of both worlds --- they want to set the price (reserve) and receive the quick payout – or not face any risk if the asset fails to meet reserve. You can’t blame a seller for trying to swing this deal…. but, it’s a mistake to agree to it. An affiliate’s role is to walk the line between their seller and their bidders; to make sure both sides are treated fairly. If a seller want’s a reserve of more than 50%-60% of the assets auction value, it is a disservice to the affiliate, bidders, other members of the network and K-BID to include the asset in an auction.
If an asset fails to sell because the reserve was not met, the affiliate is the one that pays the price:
- The affiliate committed the resources necessary to bring the asset to auction (write descriptions, take pictures, hold an inspection, etc.), and ends up with little or no compensation for their efforts.
- The seller, even though they were responsible for setting the reserve, is frustrated with the affiliate because the asset didn’t sell.
- The bidders are irritated with the affiliate for wasting their time bidding on an asset with an unreasonably high reserve.
- Other affiliates understand assets that don’t meet reserve can negatively impact bidder perception of the website they use to present their auctions.
While it would be unreasonable to expect every asset published with a reserve to sell, the variance between the reserve and the high bid on these assets should be much closer to 20% than it is to 45%.
The Starting Bid for Lots is $5
Every lot will have a starting bid of $5. The only exception to the $5 starting bid is for high value lots (value > $1,500). For high value lots, the affiliate has the option to start the bidding at $1,000.
The Value of Low Starting Bids
It’s not where the bidding starts, it’s where the bidding ends that matters. The goal of the auction starting bid is to draw in a broad range of bidders that would be interested in owning the lot for the right price. Even though many of these bidders will drop off as bidding gets higher, every bid placed is instrumental in adding to the level of excitement surrounding a lot. The more bidders interested in a lot early on, the more competitive the bidding is likely be as the auction progresses. Competitive bidding is a price driver. The higher the starting bid, the smaller the initial bidding pool becomes.
Low Lot Values
Low lot values are the #1 reason K-BID’s lot sales percentage dropped from 95% to 85%. Low value lots simply don’t make sense.
A couple reminder stats from the first 3 quarters of 2016 to illustrate the problems with low value lots:
- 74% of the NO SHOW invoices were for assets with high bids below $25 – bidders just don’t show up for low value lots.
- 61% of the <$25 NO SHOW invoices were for assets with high bids <$10
- 39,728 lots with starting bids <$10 didn’t receive a single bid – 0 bids, wow!
Combining several low value lots to make one higher value lot will draw more bidder interest. The more interest, the higher the likelihood of competitive bidding. The high bid for a combined lot is likely to be much higher than the combined high bid for several low value lots.
$50 Auction Minimum will apply for every auction published
K-BID ’s business plan has always been to generate revenue through successful auction sales. While this is still the plan, we have decided to institute a $50 BP minimum for every auction published. The intent of the auction minimum is to encourage affiliates to make conscious decisions about the way they are conducting auctions. The affiliate network is interconnected. The issues and business practices of one affiliate impacts the overall reputation of the affiliate network. It is the responsibility of each affiliate to make sure their auctions reflect positively on the network. Below is a list of questions affiliates should consider before publishing an auction:
- Are bidders going to be interested in the lots/auction?
- Are the lots high enough in value to allow for competitive bidding?
- Are the lots valuable enough the winning bidder will take the time to attend the removal?
- Are the reserves reasonable and likely to be met?
- Do my lot descriptions and pictures accurately reflect the lot being sold?
- Is my seller clear about my expectations so lots won’t need to be halted or the auction pulled due to seller behavior?
Every auction closing on or after 1/1/17 will be subject to a $50 BP minimum. If the buyer’s premium collected on an auction exceeds $50, the affiliate will be charged the usual and customary BP for the auction. If the buyer’s premium collected for an auction is less than $50, the affiliate will be charged $50 in BP for that auction.
This email and these new/updated policies are intended to improve the content of the website and increase the sales and success of all affiliates. A large number of affiliates will not be affected by the $100 minimum reserve, the $5 starting bid or the $50 auction minimum. For those who will need to make adjustments to their business practices, we wanted to get these policy changes in your hands now so you will have ample time to make the necessary changes. It is our belief the changes that go into effect 1/1/17 are reasonable and necessary to ensure the long term success of the affiliate network and K-BID.com.
As always, please contact me with questions!
K-BID Online, Inc.