Bonus Costs: Are You Losing Money?

This post focuses on online casino promotional ROI analysis.  Everybody else: behave yourself!

One of the most significant tools used by Loyalty Managers to increase their turnover (handle, bet, you name it) is bonus offering. Yes, I am brilliant, how is it that you have never thought about it yourself, etc. Anyway, by providing a promotional bonus to your players, you offer them the option to lengthen their game play entertainment “on the house”.

What is it good for? Due to the fixed house advantage mechanism, you want your wager to grow as much as possible, since higher bets mean higher GGR (Gross Gaming Revenue, calculated differently by different software providers) resulting in a larger NGR (Net Gaming Revenue, or GGR minus costs; which over time becomes your player’ LTV, or Lifetime Value).

To make a long story short – your goal is to increase your players’ engagement, since this will bring more NGR into your pockets, thus reducing the market share of your competition. Feels good? Online Casino Loyalty Manager Self Esteem Boost – CHECK!

However, what are those costs that chew up on your GGR? Well, Anything that you pay back to your players in exchange to their “unbiased” loyalty… in a nutshell: Bonuses. This entire calculation is done “on the table” – meaning, we deal with gaming transactions, and not with people costs, rent, processing fees and other boring s**t that make your CFO look as bad as he does (NOTE: this blog believes in authentic gender equality, yet you must admit that female CFOs are kind of kinky :).

Back to making money for your offshore-tax-heaven bosses: when attaching Wagering Requirements (WR) to Bonuses, you are actually asking your players to meet a certain play-through condition, prior to redeeming your oh-so-unique offer. Obviously, when the House Advantage (HA; 1 – {win/bet}) is higher, more money is being kept, since you decrease the players’ WIN value out of the BET (handle) figure. Therefore games like slots will generate higher GGR than the same amount wagered on Blackjack. Yeah – you rock!

In fact when you go to that boss of yours, wanting to blow his mind with that new concept of yours for a promo, you most likely try to budget it by calculating how much money is kept, after the WR are met:

Bonus = 100

WR = x 20

HA = 2.7%

(100 x 20 = 2,000) x 2.7% = 54; accordingly, the expected cost is 46 out of the 100 bonus

Sweet. 54% of the bonus cost doesn’t even leave the house, and yet you manage to award your crowd with a lucrative offer which allows them to play with their “spare income”. Is this wrong? As said, this perspective is limited to game play “on the table”, and doesn’t provide any actual understanding of the true impact on the bottom line. There are no business factors. We are not talking about things you can’t control (anything that is beyond the gaming patterns of your players), we are just trying to give a more detailed picture of the money trail.

In order to challenge that somewhat incomplete perspective, I suggest looking at the promotion as a wagering event caused by the campaign, and check the effect on the actual amount of money being cashed out.

I would do that by examining a new metric: “Periodical Withdrawal”, being a ratio out of Wagering. This provides an indicator to estimate the realistic amount lost due to the campaign. Back to the Excel, using the same example (yes, I know you can do that in your head…):

Withdrawal / Wager Ratio = 2.5% (WW; varies – average for some of the Hybrid Interaction clients)

Bonus = 100

WR = x 20

HA = not really important now. Why? Its effect has already been taken into consideration within the WW figure

Therefore, having  the promotion created a wagering instance of 100 x 20 = 2,000, and since we know that in the long run an average of 2.5% of this amount is granted to become a withdrawal, the true cost is actually 50 (or, an increase of ~8% extra cost by comparison to former calculation).

By looking at this ratio, we can know exactly how much money is expected to leave the system, due to the bonuses inflated during the promotional campaign.

Obviously, these ratios are market-specific; they are seasonal and are mainly determined by your previous campaigns. Nevertheless, if in your brand’s case the WW ratio would have been 5%, you would have ended up giving away your entire bonus, and let me just remind you that you are not a poker room manager… otherwise, your name would have been Bjoren and you would be on your way to deer hunting, before fixing a nice breakfast for that tall, blonde special friend of yours.

Do you have a different perspective? Would you like to share your own WW figures for the sake of a good discussion? We are eager to hear your feedback!

About iGamingCRM Blog

Shahar Attias, CEO www.hybridinteraction.com "Care to Make it Interesting?"
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6 Responses to Bonus Costs: Are You Losing Money?

  1. Hello, interesting calculations. But your WW based true cost formula means, when more Wager requirements, then more money we loosing with our bonus strategy.
    In first case, with the WR 20, bonus = 100 and HA 2.7% there are 54 USD will stay at casino pokets. If we grow wager to 40, then WR 40, bonus 100 and HA 2.7 – there are 108 USD will stay at casino after bonus is wagered.
    And in case of WW calculation, with WR 40, bonus 100 and WW is 2.5% means what 100USD of withdrawall will be. And when WR larger, then casino spend more money on their bonus strategy. it is so strange. How you explain this?

    In our casino WW is 3% in average FYI.

  2. Excellent observation, Dmitriy. The 2nd perspective is in fact another look at what we as operators cause when we ask our players to circulate the awarded bonus money.

    If we agree that regardless of anything that we do, a certain portion of any money wagered is being cashed out, then in fact – the more we ask them to play, the more money we lose.

    Obviously, we can go back to the known graph of wager vs. time (https://igamingcrm.com/2011/12/29/boot-camp-summary/) and understand that while in theory the assumption above is correct, in practice the players will lose ALL their money before at some point.

  3. Wayne Field says:

    An interesting debate, but when trying to calculate the WW ratio, surely it is not safe to assume that every participant in the promotion will stake £100 x 20?

    Each person will get a different amount into the wagering, Mr A (unlucky) may only stake £100 and bust out, Mr B may get to £450 before busting out… so on average it will be less than £2000.

    So shouldn’t it be this “average” figure that you apply the WW ratio to?
    ——-
    OR:
    Looking at it another way, on average if I staked £100 once, I would expect to lose £100 x 2.7% = £2.70 (or I would expect to keep £97.30). I would then stake £97.30 and expect to keep £94.67, etc…

    In general I would expect to keep £100 x (0.973)^20 = £57.

    So does the promotion cost £57?

    As you may be able to tell, we don’t have wagering requirements where I currently work, so I am trying to get my head around them! :-)

    • Hi again Wayne – indeed, this is more of an intellectual exercise. I think your questions justify a separate post, which will probably happen in the next few weeks.

  4. TomV says:

    I know this is 3.5 years old… but anyway….

    1. Wayne: “In general I would expect to keep £100 x (0.973)^20 = £57” That’s not right because you would not have reached the wagering requirement of 20 x 100 = 2000. In your example, you only bet 100 once, and after that the bet goes down.

    2. Shahar: Was there ever a follow-up post to this?

    3. So given the effects from wagering requirements, the theory behind the “periodic withdrawal” and the conclusion that “players will lose ALL their money before at some point” – what are your recommendations for wagering requirements when creating campaigns?

  5. Hi Tom,

    Thanks for re-floating this post! It reminds me that I do need to write this post, and I plan on doing it real soon :)

    (BTW: I am good for my word…. Ask my wife – when I promised to do something around the house, she knows there’s no need to nag about it every few years!)

    As for your other topic, I believe that this needs to take also into calculation objective parameters, such as taxation regime in regulated markets; care to share some further info?

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