A common question raised by our readers is about real-world casinos and how they can possibly hand out those huge loyalty rewards programs to their biggest clients. It is definitely a valid question; every business has to show a return on investment (ROI) in order to make a profit and the casinos in Vegas are definitely no exception. Even though their extravagant rewards program appears that it would cost a fortune, many notorious brick and mortar casinos actually spend less money per client than the average online casino.
Here’s how it works
– Retail Price versus Actual Cost
Let’s say that a popular Vegas casino comped you an entire weekend since they feel that you’re a loyal member; airfare, rental car, luxury suite, hot show tickets…the whole works.
If you were to purchase a weekend like that on your own then it may cost upwards of $1,000, but don’t forget that those Vegas casinos do not pay anywhere near that amount. The luxury suite and the show tickets do not cost the casino anything unless they have to cancel a booking for your arrival, and the travel arrangements are purchased for pennies on the dollar since Vegas hotels give so much money to those industries. So what would cost you $1,000 might run around $150-$300 for a top Vegas casino. Even though you’re receiving a much higher value for that money than you’d expect, do not mistake great treatment for ridiculous expense. Vegas casinos rely on the travel industries to make profit and vise versa…they take care of each other very nicely.
Initial ROI for Vegas Casinos
Even though the great weekend getaway was nowhere near the price you valued it at, the Vegas casino is still out several hundred dollars from the get-go. You’re probably thinking…so how do they get that money back?
Well, it really depends on the individual. When some VIP’s get a weekend comp at a popular Vegas casino, they bring tens of thousands of dollars with them and make plenty of loose bets. Now remember, they’re out up to $300 for bringing you there so if a single VIP loses $3,000 at roulette, then that just paid for ten all-expenses paid visitors. Even though that may be a break-even for the casino in many situations, Vegas was founded on those 1-5% house odds that you’ll end up losing money. It simply makes sense to bring potential high rollers into the casino as much as possible.
Others are far more careful with their gambling money and they may only play with a thousand dollars total; but at the same time they are still valuing the weekend trip at $1,000 or better. Even when they end up losing everything they brought, these types of gamblers think to themselves, “Well, I had a 1st class mini vacation that I ended up paying full price for…I can’t complain about that.” Long-Term ROI for Vegas Casinos Of course, the people we have yet to mention are the professional gamblers that can process complex math as quickly as the computers inside the Pentagon. These gamblers usually win thousands of dollars on their weekend trips to Vegas, so why the heck do they receive VIP loyalty comps too?
For the answer to that, let’s go back to your comp package one more time. We didn’t mention those $8 martinis that the house is giving you or the $19.95 buffet dinner that people are lined up around the block to access. Vegas casinos usually comp these items for VIP’s as well and write it off as a marketing cost; it’s just like a lawyer doing some pro-bono work or a golf course offering reduced rates during the winter. All of these things are a tactic to get new faces in the door and get them excited about the product.
So what about those high rollers that win $10,000 or more in a weekend? Believe it or not, they are great for overall business because others watch the pro in action and assume that they can replicate his results. The people betting on the professional’s roll of the dice or his insights to the roulette wheel are going to come back and lose a fortune…simply because they have the Vegas fever and they’ll never be able to shake it. Even if they lose hundreds of thousands over the course of their lives, they will still remember that sweet moment when they won big money for the first time and it will keep them coming back for more. That is essentially what cities like Las Vegas are founded on; the dream of getting rich all in one opportune moment. For every dollar they give away in VIP treatment, it makes ten dollars from others wanting to be a VIP. Pretty smart business plan, huh?