Online casinos can turn unbelievable profits, but before the money starts rolling in, operators need a clear picture of exactly how their business will function. Today we’ll break down online casino business models.
The online casino industry is unique in many respects. It relies heavily on the latest technology, operates across borders, and has a product offering that varies along with its clientele.
But in one respect, it’s exactly like every other industry: new enterprises absolutely must have a detailed business model. A business model outlines the process, partnerships, and resources your business will use to generate revenues.
A business model will help you clarify your vision and make sure you know what you’re doing. “I want to start an online casino” is a vague idea, not a plan that will prove to potential investors that you know what you’re doing and make the case that they should trust you with their capital.
What are the elements of a business model?
Let’s break down business models into their constituent parts.
First, there’s the product — exactly what it is you’re offering your audience. For online casinos, this seems a little cut-and-dry (betting on casino games) but it’s better to be specific. Which games, exactly, are you offering? The answer will be determined largely by the next item.
The target market is your audience, the exact demographic you envision playing on your platform. The general customer avatar in the online gambling industry is pretty consistent: players tend to be male, and on the younger side, but there are a range of other factors like game preferences that vary geographically.
You have to spend money to make money. It sounds trite, but it’s true; expenses will be one of your biggest concerns. How much are you spending on material and immaterial resources? How much does it cost to acquire a new player, and then to retain them?
Speaking of bringing in new players, your marketing strategy should be a prominent part of your business model. Even if your casino is tailored perfectly to your audience’s preferences, they won’t come knocking if they don’t know you exist. How are you going to bring them in?
Most businesses take a few months to a few years before they really start turning a profit. You’ll have to consider that as well as other startup costs, such as the cost of developing a platform and acquiring a license.
Online casinos require sophisticated software and other solutions. You’ll need to plan out your partnerships with other companies such as software providers, payment system providers, and game content providers.
For a full run-down of everything you need to do to start an online casino, read here.
Now we’ll consider your business model from two perspectives: your players and your investors.
The players’ perspective
You have to know what players want before you can give it to them.
Ask yourself: what are you offering players that your competitors don’t? With thousands of online casinos operating around the world, players are already spoiled for choice. Why should they choose you?
The answer could be your product offering. For example, you might narrow your focus to players who enjoy betting on crash games. Or maybe you’ll hone in on Gen Z by cooperating with a game developer who creates bespoke new gaming formats with an emphasis on gamification and in-game collaboration.
Or your value proposition could simply be offering the industry’s best bonuses. You might have to twist your brain in knots crunching numbers to see how many free spins you can sustainably offer new players, and what the rollover requirements would be, but if you can make the numbers work you could undercut your competitors’ welcome offers.
Careful demographic study of your target market will point you in the right direction. Once you know what players already enjoy, you can identify a gap in the market or come up with a way to disrupt the status quo with a new format.
At the end of the day, players need to see that you offer them something that no one else does — so do it.
You can learn more about online casino target audiences here.
Your investors’ perspective
Investors, like players, have simple desires. Their goals can be summed up in two questions.
A: What is the expected return on this investment?
And B: When will I see that return?
Both are equally important; if you can’t tell an investor exactly how much they’ll be making and exactly when they’ll get it, they won’t bother looking at the rest of your plan.
Time is money. Any time that investors’ money spends with your business is time not spent elsewhere, so it had better be worth their while. Most investors will want to see substantial returns, as much as 50% compounded annually or more, and they’ll also want to know by what point they’ll recoup their initial investment, as well as when they can cash out entirely and move on to their next project.
In addition to revenue projections, investors will also need to see proof of your claims. For example, your potential user base can’t just be the country’s overall population. You also have to account for age restrictions, cultural attitudes towards gambling, how many people will age into the market, buying power/disposable income, etc.
Once you’ve assured them of the time frame in which they can expect their investment to work its magic, then it’s on to the nitty-gritty of demonstrating exactly how you’ll run the casino; promising perfect numbers won’t impress anyone unless you have a detailed, painstaking plan for how you’re going to make those numbers come true.
Originality, a strong value proposition, and attention to every detail of your operations will be essential to pique investors’ interest.
The balancing act: pricing and costs
At the end of the day, your casino’s survival depends on a single point of comparison: money coming in vs. money going out.
When making your business model, you have to carefully account for every cost that you’ll be facing. Neglecting necessary costs during the planning phase could mean that all of your plans go out the window once the hidden costs unveil themselves.
Unlike most industries, online casinos don’t set their own pricing; the “price” is whatever players are willing to bet. However, casinos often set minimum and maximum bets, usually in line with player habits in their target market, and it’s always possible that regulators could be involved. In Germany, for example, players cannot wager more than €1 per spin.
Startup costs will include the initial purchase of the platform software, licensing fees, and other costs. Ongoing costs will include the monthly payments to game and payment service providers, taxes, and player acquisition.
Bringing in new players is a huge cost for online casinos, slicing a 60% gross profit margin down to a single-digit sliver when it comes to your net numbers. Affiliate partnerships, where streamers, bloggers, forums, and other affiliates direct players to a casino and then receive a share of their lifetime losses, are the industry’s most common strategy for reaching new audiences.
Retaining those players also costs money. Loyalty and VIP programs involve giving players increasing rewards over time as they spend more time and money on your platform.
To learn more about keeping track of cash flows and the rest of your casino’s financial health, read here and here.
The business model canvas
The easiest and most common method of visually mapping out your business model is to use a business model canvas. Consisting of 9 blocks, the canvas separates every aspect of a business for quick, clear, and easy reference. This won’t be to show investors, but it will help you lay out all your ideas.
Here you’ll describe your stakeholders, as well as the partnerships that drive your business, like the software provider for your platform, payment service providers, game content providers, and more, such as cooperation with financial institutions.
These are the actions your company takes to generate revenue. In this case, offering casino games like slots and blackjack.
Here you’ll specify exactly what unique value your casino offers. What sets it apart from all the rest? For example, crash game developer Aviatrix offers collectible NFTs that can serve as avatars during gameplay.
In this block you’ll cover how your customers will interact with your casino. For online casino businesses, this will be through desktop or mobile. Also consider customer support.
Define who your players are. Consider age, gender, playing habits, and anything else that identifies them.
The assets you need to carry out your key activities, both material and immaterial, like employees, capital, servers or server space, intellectual property, etc.
Here you’ll determine how your customers will hear about your value proposition, such as through your own website, affiliates, sponsorships, or advertising.
Here you’ll outline all the costs you’ll have to cover to keep your business running, including normal overhead, marketing, and any other expenditures.
This block is fairly simple. You describe exactly where your business makes its money. For casinos, it’s player losses, which are consistent due to the house edge.
Of course, the business model canvas is too boilerplate to be used as a visual aid when presenting your plan to investors. Laminated photocopies in a 3-ring binder used to be standard practice, but nowadays you’re much more likely to put together a pitch deck using Google Slides or something similar.
To find out more about how to start an online casino, get in touch with us for a free consultation.