How much would you pay for a twenty dollar bill?
In tough times, many schools and non-profits rely on charity fundraisers, and a popular one is the auction. The method is simple: supporters donate things, and then they’re auctioned off, with all proceeds going to charity.
If you have a vacation house, the thinking goes, the incremental cost of donating a week is low. And wow, I can buy a week at that house for way less than it’s worth. Everyone wins.
If you have a friend who works on the Letterman show, you can get two VIP tickets for free and donate them and someone at the auction gets to go to the show for not so much money.
This bargain hunting is fine as far as it goes, but it never leads to a wildly successful auction, because the story that’s told is too small.
If you’re only willing to bid $19 to buy a $20 bill at this auction, you’re not doing charity, you’re bargain hunting. There’s nothing wrong with bargain hunting, it’s fun, but it’s not philanthropy. I think bargain hunting for a good cause is just fine, but wouldn’t it be great if the event could raise far more money and change the way people view the organization?
The Robin Hood Foundation raised more than 24 million dollars at their last auction, because people competed to overpay. And that’s the secret. The story the charity must tell is: "don’t pay $19 for this twenty dollar bill, don’t even pay $30, we need you to pay $40!" The satisfaction of overpaying (whether you overpay anonymously or in public) is what they sell, not a bargain.
This is not the easy path. It is much easier to sell your public on bargains than it is to sell them on generosity. The good news is that once you get over the hump, it scales. Bargains scale downward… better bargains are lower-priced bargains, which means you scale to zero. Philanthropy scales upward… better overpaying is more overpaying. A public auction is always a public competition. The challenge is to create social approval for what would otherwise be bad auction skills! Enlist a few stooges in the audience in advance, then start by auctioning off that $20 bill. When it goes for $45 and the winner gets an ovation, you’ve set a tone.
The goal of a non-profit seeking money needs to be to create an environment in which the community congratulates itself on overpaying.