Turning a profit net of winning: how do online casinos make money?
What makes an online casino profitable? The answer isn’t straightforward. Or, rather, it is, but it doesn’t tell the whole story. If you want to learn how online casinos make a buck, keep reading.
Casino games are designed to be profitable, and online casino ones are no different. All the games available in a casino give the house a statistical edge on players — so, in the long term, their profitability is nigh guaranteed. However, the built-in profitability of games can only go so far: both land-based and online casinos have significant running costs that need to be covered. To turn a profit, online casinos must be able to achieve three core objectives. Curious to know what they are? Find the answer below.
What are online casinos’ revenues?
Before even getting into how online casinos generate (and maximise) their revenues, it’s important to understand what casino revenues exactly are to begin with.
Casinos’ revenues are not realised when a player places a deposit: at that point, much like a bank, the casino is simply holding the player’s money. The revenue is only realised once the player places a losing wager. The amount wagered and lost by players is what casinos call “win”; the “net win” is the difference between the amount spent in losing wagers by players and the amount paid out by the casino due to winning wagers.
The net win is a casino’s lifeblood, as it has to cover for all the operating expenses — and, ideally, provide profits too.
Why does the house always win?
Statistically speaking, online casinos’ net win is pretty much guaranteed to be positive in the long run. Why’s that?
It’s simple: games based on a random number generator (RNG) — like online slots and single player versions of tables like roulette, blackjack, or poker — have a set return to player (RTP). Sometimes the RTP is set by the game provider, other times directly by the casino.
The RTP is indicated as a percentage; for most slots, it’s between 93% and 98%. The RTP percentage indicates how much will be paid back to players by the casino — on average — as a fraction of the wagered amount. So, for example, if a player places wagers in a slot with a 95% RTP, they can expect a €0.95 return for every €1 wagered; in turn, the casino can expect to make €0.05 for every €1 wagered by players on that slot.
Live dealer games are different, but they still guarantee profitability in the long run. Much like their land-based counterparts, they give casinos an edge over the players by virtue of their rules.
Take the roulette: the highest payout for a single number bet is 36 to 1, but the true odds are 37 to 1 due to the presence of the 0 on the wheel. In the American roulette featuring an additional 00, the true odds are 38 to 1. This disparity between true odds and payouts — the “house edge” — is what generates revenues for the casino. In an American roulette, the house edge stands at 5.26%, equivalent to an RTP of 94.74%.
Each game has its own built-in house edge, with blackjack being statistically the least profitable from a casino’s perspective: against a player applying a perfect betting strategy, the house edge may end up being lower than 0.3%. At the opposite end of the spectrum, certain keno variations offer a house edge of up to 40%.
There’s a caveat: in the short term, fluctuations from the statistical average can be wild. This is a dangerous problem for budding casinos without adequate funding — and the reason why most respectable jurisdictions require operators to demonstrate the availability of sizable cash reserves before issuing a license. If struck by a big win before the ball of statistics really gets rolling, a young casino can quickly find itself out of business.
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Why isn't winning enough?
Now that we have covered why games are statistically profitable, we need to focus on the bigger picture: how do you make sure that the revenues generated by the games are large enough to cover the casino’s operating expenses?
At a very basic level, the profitability of an online casino is a question of volume. Getting revenues from games is almost guaranteed, but the tricky part is maximising the revenue volume. To do that, online casinos must continuously achieve three objectives:
- Acquire new customers
- Ensure that customers generate profits by playing
- Retain existing customers
Acquisition, conversion, and retention
Player acquisition is crucial: without customers in your casino, no revenues are generated.
There are multiple ways to acquire players, with affiliate marketing being perhaps the most cost-effective for smaller operators. Generally, affiliates are paid according to the revenue derived from players they brought into the casino. While a flat per-player fee could potentially prove cheaper in the long run, the revenue share affiliate model gives operators a way to generate growth without incurring in costs upfront. The downside to affiliate marketing is the lack of direct control and potential risks for the brand image, so it’s crucial to learn how to correctly choose and manage affiliate partners.
In-house marketing campaigns are also extremely important, but they require great expertise and can be costly. Operators (and their marketing teams) need to be aware of the advertising regulations in place in their target markets to avoid incurring in monetary sanctions or bans.
Still, marketing efforts to create brand awareness are key, particularly in the early stages: if people don’t even know of your online casino existence, there’s no chance they’ll come in to play.
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An additional acquisition technique — one that doubles as a conversion (or activation) trigger for players to start depositing and enjoying your online casino — is that of sign-up bonuses. These are additional credits given to players in exchange for an initial deposit. Similar bonuses are offered by online casinos on a regular basis to retain players, and even to reactivate those that haven’t been around for a while. Generally, sign-up and reactivation bonuses are larger than retention ones, having to act as a hook, but local regulations may impact operators’ bonus offer.
Bonuses are a powerful tool in the arsenal of an online casino, but beware: bonus abuse is real, and inexperienced operators risk serious losses if their bonus terms and conditions aren’t sufficiently tight.
Bonuses are often associated with playthrough requirements. For example, if a bonus is subject to 50x playthrough requirements, a player would have to wager 50 times the amount received as a bonus before being able to withdraw. For this reason, on top of encouraging customers to deposit, bonuses keep them playing in the casino. Wagers generally carry different weights towards the playthrough requirements, depending on the RTP/house edge of the game they are placed on. For example, wagers placed in blackjack are generally worth a fraction of wagers placed on slots. Thanks to this setup, online casinos can be confident that most of the bonus offered gets lost to attrition during gameplay, greatly reducing the likelihood of payouts.
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Prolonging gaming sessions
Now, for a tricky topic: what about keeping the players going during their sessions?
Land-based casinos have mastered this art for many years: no clocks or windows in sight remove visual cues of the passage of time, while the flow of free drinks clouds the visitors’ judgment in most offline establishments.
Online casinos have a different toolset at their disposal: in-session bonuses triggered during gameplay serve to keep players engaged, while autoplay features take a different approach — condensing the time required for players to wager a given amount of money.
Many regulated jurisdictions, however, are pushing towards giving players responsible gaming tools aimed exactly at curbing online casinos’ attempts to keep players engaged in long playing sessions. Session timer reminders are now widespread, and some regulators are moving to impose limits on autoplay features — if not outright banning them.
As responsible gaming practices become de facto industry standards, operators would do well to approach this objective from a quality standpoint: engaging players by offering the best games available on the market. The more online gambling regulations tighten up, the more an extensive catalogue of high-quality games will be necessary to operate a successful online casino.
How can Slotegrator help?
Here at Slotegrator we aim to provide investors keen to enter the iGaming industry with the knowledge and tools required to be successful right off the bat.
If you want to learn more about marketing your online casino, you can download our free ebook dedicated to the subject by clicking here. Also, in the Academy section of our website you will find a wealth of resources to get you up to speed with the industry’s fundamentals — we’ve sprinkled a few links throughout the article, but there are many more you might be interested in. For example, would you like to know how to stop players from leaving your casino?
Once you’re ready to take the first step into the industry, make sure to get in touch with our sales team for a free consultation — they’ll be able to guide through our extensive offer of services and products, including a myriad of online casino games by leading studios worldwide.