Nego / Guide
Reverse auction: how it works and when it pays off
In a normal auction, buyers push the price up. In a reverse auction there is one buyer and several suppliers, and the price goes down. It is one of the simplest ways to find out what the things you buy really cost.
What a reverse auction is
A reverse auction (also called an e-auction or a descending auction) is a way to choose a supplier where companies bid for your order. You describe what you need, set a starting price and invite suppliers. Each new bid has to beat the best one so far. Participants can see where the best price stands, so they decide in real time whether to go lower.
The difference from a request for quotation is simple. In an RFQ each supplier sends one sealed offer and has no idea how it compares. In an auction the supplier sees the competition and gets a chance to respond. That is why an auction shows the price the market is willing to reach, not just the first offer.
How an auction runs, step by step
- Describe the purchase. Specification, quantity, delivery date and terms. The more precise the description, the more comparable the offers.
- Set the auction parameters. Starting price, minimum bid step, duration and overtime.
- Invite suppliers. Usually by e-mail. Send the description in advance so suppliers can ask questions.
- Bidding. Suppliers place lower and lower bids and see the best price live.
- Result and decision. You get a ranking of offers and the bid history. Choosing the supplier is still your call: quality, delivery and the relationship still matter.
When a reverse auction makes sense
An auction works well when:
- you can describe what you buy precisely, so offers are comparable,
- there are at least a few suppliers able to deliver it,
- price is a major part of the decision.
Typical examples are packaging, raw materials, transport on regular routes, standard components, office supplies and repeat services such as cleaning or security.
It works less well when the scope is still unclear, when there is only one realistic supplier, or when the purchase is mostly about design or know-how. In those cases a conversation is still the better tool.
A simple test: if you could put the specification in a spreadsheet and send it to five suppliers, you could also run it as an auction.
Starting price and bid step
Two numbers decide how an auction runs.
Starting price
This is the ceiling. Set it at a level you would accept today, for example your last purchase price or the best quote you already have. Set it too high and the first bids say little. Set it too low and some suppliers may not join.
Minimum bid step
This is how much each new bid has to go below the best one. A step that is too small leads to a long series of tiny moves. A step that is too large stops suppliers early. For many purchases, somewhere between half a percent and one percent of the value is a sensible start.
Overtime: why an auction should not end at a fixed second
A fixed end time invites last-second bids. A supplier waits until the final moment, places one bid, and nobody has time to respond. The price stops where it happened to be, not where the market is.
That is what overtime is for: when a new bid comes in near the end, the auction is extended by a set time, for example 60 seconds. The other suppliers can answer, and the auction ends only when nobody wants to go lower. Waiting no longer pays, so suppliers compete in the open.
How to prepare your suppliers
An auction is only as good as its list of participants. A few rules that help:
- Tell suppliers in advance that the purchase will be decided by auction, when, and on what rules.
- Leave time for questions and share every answer with all participants, so nobody has an advantage.
- Remove barriers. The less paperwork for the supplier, the more offers you get. Mandatory accounts and training put smaller companies off.
- Use the supplier's language. With suppliers abroad, a condition they do not fully understand turns into a cautious, higher price.
- Play fair. Do not invite suppliers you would never choose. A supplier who feels used will not come to your next auction.
After the auction
An auction shows you the price, but it does not make the decision for you. Before you choose, check that the winning offer meets every condition in the description, compare delivery and payment terms, and record the result. The bid history is useful in later negotiations and when you report savings inside your team.
Common mistakes
- A vague specification that makes offers impossible to compare.
- Too few suppliers. With two participants an auction rarely gets going.
- A starting price picked out of thin air.
- No overtime, so the auction is decided in the last second.
- Running an auction where quality or design matters most.
How it works on Nego
Nego is a B2B reverse auction platform. You set up an auction in a guided creator: starting price, bid step, overtime and invitations in one place. Suppliers join with a one-time PIN from an e-mail, with no account, and bid in their own language. The auction description, questions and answers are translated into 97 languages. Every bid near the end extends the auction by the time you set. After the auction you get the ranking, the bid history, an AI summary and exports to CSV, Excel or PDF.
Your first auction with up to 3 suppliers is free on the Starter plan. See how the platform works.
Test it on your own purchase
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