Working in the gambling industry involves interacting with large amounts of money. To manage financial resources properly and receive decent revenues, you should be well-versed in the main factors affecting the profitability of an online establishment.
RTP is a percentage that theoretically suggests how much money a punter can get back after a game session. As a rule, the average rate in casinos is 95%.
91% is considered a low indicator. A high RTP is 98% or more. The bigger this value, the more often and larger the winnings of the players. However, it is worth remembering that online slots work based on the random number generator. Therefore, it is impossible to predict accurately whether the next spin will be successful or not.
It should also be considered that the frequency of receiving prizes is also affected by such an indicator as volatility. This is the ratio of the amount and frequency of winnings.
RTP = Total winnings of players / Total number of bets placed
Hold = Total amount of bets placed - Overall sum of customers’ winnings
Margin = Hold / Total Bets * 100%
In addition to RTP, operator costs also affect the profitability of a virtual establishment. The amount of expenses depends on the peculiarities of a particular project. Different regulators set specific tax rates. The cost of services from many providers can vary significantly. Therefore, spending on certain projects may differ critically.
This indicator does not show the net profit of a businessman, but rather the level of sales and the effectiveness of interaction with customers.
The simplest formula to calculate the gross gaming revenue looks as follows:
GGR = Total sum of bets - Winnings received
There are 3 key types of gross gaming revenue in the entertainment industry:
The base of this rate is the sum of all bets made by customers minus the winnings received
GGR of a controlling body
Some jurisdictions create formulas for determining gross income to standardise taxation and reporting
GGR of a supplier
Gambling software vendors also create GGR schemes to regulate commercial interactions with entrepreneurs better
The second and third types represent a certain percentage of costs. Let us look at a few more interpretations of gross revenue in the entertainment business.
If you provide additional rewards to your clients, a regulator may allow the amount of bonuses paid to be subtracted from the sum of the required tax deductions.
In this case, GGR will be calculated using the following formula:
GGR = Hold - Rewards earned by customers
Most modern software contains automatic systems of economic indicators reporting and calculation. However, some operators resort to the services of accountants to avoid inaccuracies in computations and control changes in key financial indicators personally.
GGR can be calculated with the help of this formula:
GGR = Initial balance + Players’ deposits - Withdrawn funds - Budget at the end of a certain period
This indicator significantly depends on the costs of an operator. Therefore, it is important to plan the expenses on purchasing software, maintaining the platform, paying taxes, and other important things very carefully and thoughtfully. It is also worth considering bonus payouts and players’ winnings.
Net Profit = Total Bets Made - Business Service Costs - Total Users’ Winnings
It should be understood that this is a very generalised formula. Each project has a specific list of expenses. You need to focus solely on the indicators of your business when calculating the net profit.
Let us look at how to determine the key profitability indicators of an online gaming project using specific examples.
The players' total winnings amounted to $110,000. Let us calculate the hold:
$125,200 - $110,000 = $15,200
Let us determine the establishment's margin for the time:
$523,456 / $11,200,000 = 0.046 * 100% ≈ 4.6%
Users placed bets on $92,500,000. The operator paid out $300,000 to customers as bonuses. The platform maintenance fee is 3% of the hold. The cost of entertainment content is 14% without deducting bonus payouts.
The gambling project gives the payment service provider 5% of the total amount of bets. Tax deductions are 12% of GGR.
To determine net revenue, we are applying the following formula:
GGR - Tax deductions - Gaming platform maintenance costs - Entertainment content fees - Transaction processing fees
GGR = $4,200,000 - $300,000 = $3,900,000
Tax deductions = $3,900,000 * 12% = $468,000
Gambling platform maintenance= $4,200,000 * 3% = $126,000
Payment processing fee = $7,000,000 * 5% = $350,000
The cost of entertainment content = $4,200,000 * 14% = $588,000
The project’s net income = $3,900,000 - $468,000 - $126,000 - $350,000 - $588,000 = $2,368,000
Competent financial analysis will allow you to properly plan further expenses and calculate the potential revenues of your online establishment.
The key factors affecting the net profit of projects are as follows:
To make calculations and plan the costs of your business correctly, seek the help of professionals.
The Smart Money team is ready to analyse the effectiveness of your start-up’s financial planning and create a unique expense and income strategy for the project. Leave a request to the manager to learn more about our services and conclude a cooperation agreement.
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