Every owner or entrepreneur in the online gambling industry needs to have a basic understanding of Key Performance Indicators (KPIs). The most important metrics to measure include Gross Gaming Revenue (GGR) and Net Gaming Revenue (NGR).
Understanding these money-related KPIs is crucial for determining whether your iGaming business is profitable or growing as expected.
Knowing how to calculate Gross Gaming Revenue (GGR) and Net Gaming Revenue (NGR) is essential for online operators, as it allows them to obtain valuable data about their strengths and identify areas needing improvement to sustain the business.
To survive in the competitive gambling industry, casino operators must monitor their Gross Gaming Revenue (GGR) and Net Gaming Revenue (NGR) to control costs and monitor performance.
What is Gross Gaming Revenue (GGR)?
What is GGR? How important is it for operators? Before answering this question, we should clarify that Gross Gaming Revenue (GGR) is also known as total gaming profit or total gaming revenue.
As the name suggests, it is a key performance indicator used by gambling operators to measure the total revenue generated from player bets over a specific period. GGR represents the amount remaining after all player winnings are paid. It is the total revenue (gross income) generated by an iGaming business, minus any expenses or costs incurred while operating a casino or sports betting business.
To calculate GGR, you need to subtract the amount paid to players from the total amount spent by players on real money bets. The result represents the amount lost by players over a specific period. Operators can use this to calculate your weekly, monthly, quarterly, or annual gaming sales.
Both online and offline casino operators can use total revenue as a KPI to measure their revenue growth over time. A high GGR or high average revenue per user usually indicates that your business is performing well financially. However, calculating Net Gaming Revenue to determine whether you are profitable or at a loss is crucial.
The benefits of understanding Gross Gaming Revenue go beyond just knowing the gaming sales. Operators can use this parameter to make strategic business decisions about their services, promotional activities, and player attraction and retention strategies. Additionally, GGR financial data provides useful information about the competitiveness of a gambling platform in the industry. It shows the ability of the brand to remain relevant in an industry where new businesses are launched weekly.
Gross Gaming Revenue also helps regulatory authorities determine how much tax a gambling business should pay to the government. Once operators know how to calculate Gross Gaming Revenue, they can determine the correct tax amount, forecast taxes, and pay accordingly to ensure compliance with the law. This is important because only operators who comply with the rules can retain their gambling licenses.
Gross Gaming Revenue Calculation Formula
For any operator, learning how to calculate Gross Gaming Revenue is an important consideration. New and established businesses in the gambling field may be able to determine their total revenue without the help of professionals. However, accounting in iGaming is not just about calculating total gaming revenue. Therefore, serious operators usually have accountants calculate total revenue and other important key performance indicators to measure growth.
The steps to calculate GGR are simple. It is the amount spent by players on bets minus the amount paid in winnings. Please refer to the formula below.
GGR = Player Bet Amount – Amount Paid in Winnings
Gross Gaming Profit
The GGR profit margin of an online gambling business is another key factor to consider when assessing its overall performance. It refers to the percentage of Gross Gaming Revenue calculated as a percentage. In other words, the GGR profit margin is the percentage of total revenue that the casino retains from the total amount of money bet by players. As an operator, achieving a higher GGR profit margin should be your ultimate goal. Higher values usually indicate that the business has retained a substantial amount of money from all the real money bets placed by players. Operators can use this metric to measure the financial health of their business.
Calculating Gross Gaming Profit
Once you know how to determine Gross Gaming Revenue, calculating GGR profit is easy. The two most important numbers to consider are the total amount bet by players and the amount paid to players in winnings. You can use this information to determine how much of the money bet by players stays in the casino or sports betting company. By dividing GGR by the total amount spent by gamblers, you can calculate the GGR profit. Here is the formula for calculating GGR profit:
Gross Gaming Revenue (GGR) Profit Margin = GGR / Total Player Expenditure
GGR Profit Example
Suppose an online casino's players spent $100,000, and you want to calculate the annual GGR profit. We also assume that the total amount won and paid in winnings is $70,000. You can use the following formula to calculate the profit:.
GGR = Betting Amount – Payment Amount
According to this formula, we need to subtract $70,000 from $100,000, so the Gross Gaming Revenue is $30,000, remember:
GGR Profit Margin = GGR / Total Player Expenditure
Using this formula, GGR Profit = $30,000 / $100,000
Therefore, the annual gross gaming profit is 0.30, or 30%
What is Net Gaming Revenue (NGR)?
If you want to measure your income, understanding the relationship between GGR and NGR is another crucial step.
Net Gaming Revenue is a key performance indicator that helps iGaming industry business operators track profitability. As mentioned above, GGR does not consider expenses related to operating an online or physical gambling business. On the other hand, you must include the amount spent on various expenses to calculate your business's NGR.
To know how profitable your business is, you need to subtract all expenses from the total revenue generated during a specific period.
Let's talk about the different types of expenses that a gambling operator might incur. First, operators must pay bonuses to players who bet real money and win. Second, casino businesses spend money on advertising and affiliate marketing to build brand awareness and attract players. Other common expenses include commissions for using payment gateways and fees paid to various software providers.
Another notable expense is the money spent on licensing and taxes. Gambling operators need to obtain a license from the government or gambling regulatory authority of the target jurisdiction. Such licenses are usually expensive because they often include application fees, license fees, and annual fees. Additionally, gambling businesses are usually obligated to pay taxes based on the total revenue generated from player bets. These expenses have a significant impact on the amount operators can retain at the end of the month or year.
By calculating NGR, operators can gain insight into how effectively the casino converts player deposits into revenue. If the NGR-to-deposits ratio is high, it means the business is earning more money from player deposits. This is good news because it indicates that the casino or sports betting company's financial condition is growing. It represents the profit earned by the operator. Like GGR, understanding NGR can help gambling brands make the right decisions to improve performance and profitability.
Net Gaming Revenue Formula
Calculating NGR requires subtracting the amount paid to players and other expenses from the total revenue generated. However, we must remember that different businesses incur different costs and expenses. For example, if an existing casino already has a valid gambling license, it may not need to pay a license application fee. Additionally, not all calculations may include operating and marketing costs, so the numbers may vary. The simplified formula below shows how gambling business operators can calculate their NGR.
Net Gaming Revenue (NGR)
Net Gaming Revenue (NGR) = GGR – Expenses (taxes, commissions, bonuses, advertising fees, license fees, payment method fees, and fees paid to software providers)
The net gaming revenue profit margin represents the percentage of bets retained as profit by the gambling operator. If you want to run a profitable casino or sports betting business, the goal is to increase the NGR profit margin. A higher net gaming revenue profit margin indicates that your brand is effectively converting player bets into profit. In this case, the expenses incurred are also reasonable. Industry averages vary depending on the casino game.
Calculating NGR Margin
Gambling businesses need a clear understanding of their gross gaming revenue and expenses to accurately calculate NGR profit. The method for calculating NGR profit is to divide NGR by gross gaming revenue. Please refer to the following formula:
NGR Profit Margin = NGR / Gross Gaming Revenue
NGR Margin Example
Suppose your GGR is $120,000. You also spent $20,000 on bonuses, $13,000 on taxes, and $17,000 on operating costs.
In this case, your NGR would be: $120,000 – ($20,000 + $13,000 + $17,000) = $70,000
Your NGR margin would be:
$70,000 / $120,000 = 0.5833 or 58.33%
The Main Differences Between GGR and NGR
Successful businesses in the iGaming industry can make useful decisions based on the data obtained after calculating their total gaming revenue and net gaming revenue. These important KPIs can be used for business analysis to track your progress over a specified period. Therefore, understanding the differences between GGR and NGR is crucial. Here is what you need to know about these two popular indicators in iGaming.
Gross Gaming Revenue
GGR is the amount bet by players minus the amount paid in winnings
GGR is the revenue generated from player losses
GGR does not consider operating costs and other expenses
Net Gaming Revenue
NGR is the revenue generated after deducting all expenses
NGR represents the profit amount earned by the business
NGR considers taxes, promotional costs, commissions, and license fees
Other Key Performance Indicators
GGR and NGR are not the only key performance indicators that gambling business operators need to consider. There are other money and personnel-related KPIs. The following indicators provide valuable information about different aspects of casino operations, which gambling businesses can use to make wise decisions, improve profitability, and enhance overall performance.
Betting-to-Deposits Ratio: A comparison of the money spent by players on bets versus the money deposited.
NGR-to-Deposits: This KPI represents the percentage of deposits converted into revenue by the casino when players bet on games or sports events.
Customer Lifetime Value (LTV): An estimate of the total revenue a business can earn from a participant over a period of time.
Average Revenue Per User (ARPU): Refers to the average revenue generated by the casino from each player over a period of time.
Deposit Conversion Rate: The percentage of registered players who make a deposit.
Churn Rate: This is the percentage of inactive players over a certain period.
Cost Per Acquisition (CPA): This metric measures the cost of acquiring new customers.
Daily Active Users (DAU) and Monthly Active Users (MAU): Refers to the number of active players in the casino each day or month, respectively.
Conclusion
Overall, GGR and NGR are two important parameters for businesses in the online gaming world to calculate gaming revenue. If operators, entrepreneurs, or business owners in the industry understand the meanings of these money-related key performance indicators, they can provide a better gaming experience for their customers.
The information obtained can help assess the company's revenue and expenses over a period of time. With this data, operators can easily make wise decisions to improve their performance and meet the needs of various players.
