Is Swoopo Profitable?
This question would seem to be a no-brainer for the casual Swoopo observer. After all, they auction off items at a 65% discount on average, which nets them typically 300-400% in bids over the retail price. It would seem they do quite well, no?
Excluding a Major Cost
One thing that these folks are not factoring into Swoopo’s profitability is the cost of acquiring an auction bidder. Think back to how you first discovered Swoopo. Did you discover it through a Google advertisement?
Swoopo probably spends in the tens of thousands of dollars per day attracting potential bidders to it’s site. That’s a lot of scratch…
How Does It Look Now?
So let’s say Swoopo is spending $0.50 for every potential customer that clicks a Swoopo ad. And let’s say 1 in 10 of those buys Swoopo bids. Your cost for every single customer is now $5.
Some auctions can have 50, 100 or even 200 bidders participating. See how those customer acquisition costs add up fast!
What Does This Mean for Bidders?
The reason I’m discussing Swoopo profitability is to make a very important point. The Swoopo cynics are quick to point out that Swoopo makes a killing on every auction and needs only to continue to churn customers in and out to make a buck. Fortunately for us (and unfortunately for Swoopo) that’s not the case. If Swoopo is paying $5 for every bidder upfront (and that’s probably low) then they must focus not on an endless churn of new bidders…but a business model that makes sense and leaves many bidders happy and wanting to come back.
The Swoop It Now feature was a step in the right direction. It allows anyone who’s invested a lot in an auction to recoup that investment and still get the product. No, they won’t get it for bargain basement prices…but they don’t leave empty-handed either. And the winner still gets their often amazing deal.
I don’t know what Swoopo has planned for the next iteration of their site, but you can bet they will take steps (or even a dramatic leap) in the direction of a better user experience. Their very success depends upon it.
Great post Matthew. Couple of additional thoughts. The real cost of customer acquisition for Swoopo, from paid channels is often significantly higher, closer to 15-30 dollars per new user, depending on the marketing channel and the geography. This is based on the payouts offered on various affiliate networks and backing out CPC on Google. The problem for Swoopo and a lot of other penny auction sites is that their marketing message does not even come close to the reality – i.e. they focus on attracting people that are looking for a great deal on a TV and most often are sorely disappointed when they find out the chances of them scoring such a deal and the cost involved. No wonder so many people are crying uncle, and calling them a scam. We know it’s not a scam, IF you have the proper expectation: if you’re looking for a high-octane competitive experience with a chance to score a great deal (whatever that may be), then you’ll enjoy penny auctions, like Swoopo. So they end up spending a TON of money, looking for new users in the wrong pool of people (i.e. lot of marketing spend) hoping to find a few people who get it right away and continue to come back (their bread and butter). And of course, as everyone on this site knows, not every auction is wildly profitable for Swoopo – if you got a great deal, it most likely means Swoopo lost some serious dough… For more on penny auctions in general, check out http://www.pennyauctionguide.com. Cheers.
Penny Auction Guide -
I couldn’t agree more. I did my best to ballpark the CPA but your figures don’t sound too far off to me either. It just further stresses the importance of maximizing these visitors, especially with return visits.
I’ve really enjoyed your site and would highly recommend it to my readers.
- Matthew
I think you are very wrong in your assumptions. Do you realize why the casinos make so much money? Do you understand why online gambling is one of the most competitive and profitable niches?
Its because gambling and things are extremely addictive. You would think when someone looses they just get dissapointed and leave? In fact, they have an urge to ‘try again’. Nobody bets thinking they are going to loose. Its the hope of winning that just makes them spend insane (I mean completely insane) amounts of money.
If they win – they know it works and spend more money on this.
If they loose- they buy more bids and try again (maybe with a better strategy or plan)
Especially the site I am on – I get surprised at how much money all these guys spend on the site. I mean like almost 60-80% of their monthly income probably (no kidding at all, you have to see it to believe it). So if Swoopo spends $50/customer, don’t be surprised if they make about $500, even $600/customer. And at least 30-50% of it is pure profit, maybe even more.