The Beauty of Recurring Revenue!

Let’s face it: Every business thrives and survives, or dies, on the revenue it generates. You can talk about expense management, efficiency, cutting waste, etc., until you are blue in the face, but without revenue, you end up at the bottom of the creek (with or without a paddle).

But my friends, not all revenue is equal.

There are many different types, and it pays to make sure your player development executives and hosts know the difference (and how the revenue they generate is tied to the players who generate it).

Many years ago, I sat on the board of a gaming systems company and helped (along with many other talented hard working people) in transforming them from a somewhat mom and pop organization to a professional modern tech company. In doing so, we found we had two very specific types of revenue. One was new sales revenue, or what I referred to as new money. The other was recurring revenue or monthly maintenance fees. Every time we sold, rented, or leased a new system to a new client (or expanded one at an existing client) that was new money. New money is hard to project. You can estimate it, guess at it, pre forma it, but in the end it is a guess and a very hard source of revenue to count on or budget for in your financial projections. Whereas recurring revenue is consistent, predictable, budget-able and pretty much ensures you can sleep well at night knowing your business can pay its bills next month.

Now don’t get me wrong. New money is critical, it’s great, sexy, and it is responsible for your company’s growth and success (not only because of the revenue it brings in, but also because following new money is the recurring revenue that adds up with each new sale or client). At least that’s the way it worked for our technology systems company. With every new client came an add on to our recurring revenue through system maintenance fees. So new money turns into recurring money if handled properly, and the growth that was achieved remains and moves the company to a higher level. The two are mutually dependent upon one another.

How does this translate to your player development efforts?

First, let’s divide our revenue into three groups: low value player revenue, mid-value player revenue, and high-value players revenue. Of course, our PD efforts are aimed at high-value players, so we can focus on that group. But really, you can label your revenue for all three groups, and the principles are the same.

Let’s break it down like this:

  • New Revenue – Revenue from trial (first-time players), and growth (existing players playing over and above their normal amount).
  • Recurring Revenue – Retention revenue (consistent revenue generation from existing players).
  • Recovery Revenue – Reactivation (revenue from players that have stopped playing or significantly lowered their revenue contributions).

Tie this into how we market to each player category …

By breaking down the revenue into these categories we can then tie it to the player categories that we market to in each group (and specifically to those high-value players we aim our PD efforts at).

  • New Revenue – Generated by acquisition players and growth players.
  • Recurring Revenue – Generated by retention players.
  • Recovery Revenue – Generated by reactivation players (both significant decliners and “dead” players).

Of course, the trend in Player Development over the last twenty odd years has gone from focusing on maintaining recurring revenue (service-based PD) to new revenue generation (sales-based PD through sales efforts aimed at growth and new player categories). Rather than teaching hosts to “keep them happy” and maintain recurring revenue, we have tried to shift the pendulum to “maximize their value to the casino” by growing their revenue contributions.

Perhaps time to swing the pendulum back the other way just a bit and rediscover the value of ensuring our recurring revenue.

As our industry becomes more saturated with supply, and as demand begins to fracture with the advent of more and more entertainment options not specifically tied to gaming activity, and as we begin to see our sales efforts become more successful, the opportunities for growth become somewhat more limited. And recurring revenue from retention players becomes even more important (especially with the competitive landscape happening in all our gaming markets.)

I am not suggesting that we limit our sales efforts to new revenue (player prospecting and growth). I still firmly believe the best and highest use of a casino host is to encourage and GROW the book of business they are assigned to manage. Besides this, handled properly, NEW REVENUE SHOULD TRANSLATE INTO RECURRING REVENUE over time.

Recurring revenue is going to play a larger part in that as time goes on and the skills necessary to keep and retain players of high worth will become even more important. In the end, it becomes more of a balanced approach with efforts directed appropriately at each of the revenue categories (and therefore each of the player categories).

What does this mean in terms of running your PD department?

Well, you might try looking at your revenue differently and seeing what the data tells you. How much of the revenue of your high-value group is recurring, and how much growth do you see in that group of players? Just like the tech company example from above, every time you grow a player’s revenue through sales efforts, that new revenue soon converts to recurring revenue. If it doesn’t, then you try to constantly grow players who go up and down and back and forth on the revenue spectrum.

In other words, once a casino host grows a player’s revenue contribution to its maximum point, that revenue converts to recurring revenue, and a different set of skills and marketing techniques is needed to ensure that revenue remains consistent over time. Otherwise, the player backslides, and you start the process all over again.

The first step is to see how the growth of NEW revenue in your PD player segments translates to recurring revenue over time.

Otherwise, you are on a teeter-totter going back and forth and expending far more effort than might be necessary to significantly increase your high-value player revenue contributions.

Ultimately, it is just another way to slice and dice your data to see if your business is moving the way you want. What is the ratio of new revenue to recurring revenue in your player value groups? Are the ratios growing in the right direction? Are you simply moving money back and forth between the two by focusing only on one type of revenue? Does a percentage of your new and recovery revenue translate to recurring revenue and stay there?

The answers should give you another significant way of evaluating your PD efforts and strategically directing your hosts on which type of revenue to focus on and how to maximize that value to the organization.

Does your operation need a host and player development review or on-site custom training? Contact Raving today

Steve Browne 18 Articles