In my recent travels, I have often been surprised at how many people need help understanding the importance of their game room payout percentage and redemption markup. They need to pay more attention to the direct impact of these two things on their revenue and bottom line. Although most arcades are generally not the attraction that brings customers into an FEC, they ARE typically a significant source of overall revenue.

Many people spend their time on what they know best. However, this may not always be the most beneficial to their bottom line. If your arcade makes up 50% of your revenue, and your snack bar makes up 15% of your revenue, but you spend most of your time focused on your food cost, you are likely not maximizing time to increase your bottom line. If you save a few cents on French Fries, will that have as much of a financial impact as if you can increase your game room revenue by 10%?  

Understanding Game Room Mechanics

When I owned and managed FECs, I often had to explain this to my team. Our F&B (food & beverage) revenue was a fraction of our game room revenue, but F&B was a familiar area to them so that they would spend most of their efforts on it. A significant reason for this was that they needed to understand all the various factors that went into a game room. F&B is relatively simple to understand. If it costs me 30 cents to make an item, and I sell that item for $1.00, my Cost of Goods Sold is 30%. Your variables include the price of the item, the cost of the item, and the amount of waste. To increase the bottom line, consider shopping for more affordable products, reducing waste, adjusting portion sizes, or raising prices. Overall, the concept of F&B is simple to understand.    

An arcade is slightly different. Some games offer tickets or redemption points, while others provide prizes as rewards. How much is a ticket/point worth? How many tickets or points should the games give out? How many tickets/points should the prizes cost? What is the correlation between ticket/point payout and redemption prize markup? I can’t tell you how many redemption counters I’ve seen where an employee puts a ticket number on a prize without knowing the prize’s cost. 

I will break it down for you here. If you already know this, you may consider sharing it with your team so they understand its importance.  

Game Room Payouts/ Redemption Markup

In a game room, there are two main variables that you can adjust. How you adjust these areas will directly affect revenue and the guest’s perceived value.    

1. Game room payout – This is how many tickets/points your overall game room pays out
2. Redemption markup – This is how much you are marking up your prizes

This is a delicate balance. If your game room pays out too high, you will lose money. There are several ways to adjust this; both options will impact your revenue and the perceived value of your guests. You can change the price-per-play and/or the ticket payout. 

Low Price Per Play / Low Payout Model

Some places, such as Nickel Arcades and FECs, attract a young crowd. They keep the price per play low. As a result, the ticket payouts are also low. There are pluses and minuses to low-price-per-play/low-payout games.  

Positives:

1. A higher perceived value when you purchase your credits or include credits in a party package. 
2. A higher perceived value in the value you receive in terms of time spent playing per dollar.
3. Lower cost on tickets (if you are still using paper tickets).

Negatives:

1. When jackpots are low, there is less excitement, and most games only award a few tickets or points.
2. More work to earn tickets/points for higher-priced items.
3. It often creates a lower perceived value upon leaving your redemption area, which is a lasting impression.
4. Running promotions and “Happy Hour” in your game room is more challenging.

I recommend a low markup on your redemption items if you use this model. Nothing is worse for a guest’s perceived value than spending $40.00 and walking away with one mini Tootsie roll and a finger trap.    

High Price Per Play / High Payout Model

Entertainment centers for adults usually set their credits to play at a higher rate. They also offer bigger ticket or point payouts. In this environment, $5 or $10 will only last for a short while, but you will receive more tickets or points per play, and the jackpots are higher. Here, the lower perceived value often stems from the initial purchase of credits and the need for more time spent per dollar, but it can usually be overcome with high-ticket payouts and great prizes. Your lasting impression is typically favorable if you walk away with a great prize.  

Understanding Your Demographics

To determine the best pricing and ticket payouts for your game room, you need to know your primary demographic. The sweet spot for most people will typically fall between the two examples above. Ideally, you want excellent payouts and see many winners in your location with decent-priced games that allow for a decent amount of gameplay time. So, how do you determine this “sweet spot” for your location? First, ask your arcade games distributor what they recommend for the settings.

That’s a good starting point. Next, track the revenues on that game for a while. You should start to see a trend. Now, begin to experiment. What happens to the revenue when you raise the price? What happens to the revenue when you increase the ticket payout? These aren’t the only variables that determine the game’s profitability. The revenue of each game can also be affected by maintenance issues and the location in your game room. A poorly located game, a dirty game, or a game missing bulbs will also affect revenue.

Optimizing Your Game Room

When dialing in your game room, you need a scientific mind to adjust variables and track the effect of each adjustment on your game room. You may be surprised to find that your games are priced too low or too high, or that changing the ticket payout increases or decreases revenue. Sometimes, what you need to do goes against what you might think is necessary. For example, eliminating bad or outdated games can and often will increase your overall game room revenue, even with a reduced game selection.

When to Refresh Your Games

Don’t hang onto old games just because they don’t have any resale value or because they are still “making some money”…they may be losing you money. Another concept that often goes against the grain is that offering more prizes and tickets can increase revenue. This is a proven concept. When a game pays out a jackpot or a big prize, that game will not only have a line, but you will often see the person who won buy more credits to try to win again. Winners make players.  

Pricing & Ticket Thresholds

Although your pricing and ticket thresholds may differ, there are some guidelines you can use for various games. For the most part, the more “fun factor” a game has, the fewer tickets it will pay out. Games like Alley Rollers and Sports Games are fun to play with or without tickets, so those will be set to a much lower payout than games that are ONLY played to win tickets. A good game room payout percentage is 25-35%.         

For ease of discussion, let’s say that your game room is paying out at 30%. That means that for every $10.00 a customer gives you, you give them $3.00 worth of tickets. In this scenario, if you gave them a $3.00 item at your cost, you are already running a 70% profit. But most FECs are not doing that. They are making a profit off the guests in the game room and marking up the items in the redemption counter, often 2-4x the cost. 

Optimizing Your Redemption Counter

The next variable controlling revenue is the selection of your redemption counter and the markup applied to it. In this example, if we used a penny-per-point value, we could say that the person who spent $10.00 now has 300 tickets. Purchasing a Tootsie Roll bank for $1.00 and applying a 3x markup would make the item 300 tickets. Now, you have made a 90% profit from this customer, and they may or may not have left feeling taken advantage of. You don’t HAVE to gouge customers in the arcade and redemption counter to be profitable. 

If you have a high redemption markup, consider adjusting your games to offer more tickets and lower prices, or maintain a lower redemption markup and generate profits in your arcade. It’s beneficial to lower the markup as you move into higher-priced items, making them more attainable. If someone earned enough tickets for an XBOX at your 70% profit margin, you don’t need to double or triple the price of that item. Think about a graduated approach to your markup. Start with a 2-3x markup for your smaller counter items, then gradually decrease to 1.5- 2x, and then to 1 as you move into higher-priced items.

Consider this area a retail environment. If it is not neat, clean, organized, and stocked with things people want, you leave money on the table. You’ll lose money if items are not “selling.” The goal is not to price your items so high that they never sell, so you don’t have to redo or restock your wall or counter. If your game room payout is set correctly and you have substantial weekly redemption orders, that usually means you are making money, and that’s a Win-Win situation for you and your guests.

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