6th March 2017
Hi ,
When we’re looking at the selections we’re betting, we often want to tweak them to try and make them generate a greater profit.
I don't recommend doing this, but it's a completely natural reaction.
After all, the reason we bet is to make a profit. And obviously we want this to be as big as possible.
That brings me to the question...
What's the first thing most punters look at when they're testing tips or betting systems, or designing their own?
Profit.
That make perfect sense.
But what's wrong is how most people measure profit.
The most common way of measuring the performance of selections is through ROI (Return On Investment).
The ROI tells us how much profit we should be making, without allowing the confusion of points getting in the way.
For example…
If you have a 25% ROI then you'll be expecting to make a profit of 25% of everything that you bet. If you bet £100 then you can expect to make £25 profit, if you bet £10,000 then you can expect to make £2,500.
It's a great measurement because it allows you to work out how much you can expect to profit based on your own stake sizes.
If your first thought is that you want to maximise the ROI, then that also makes perfect sense.
Obviously, if you can make a 40% ROI instead of 25% then that would be excellent.
For every £100 in bets you're going to make £40 profit instead of £25 profit.
So, at first glance it seems that all we should be focusing on is increasing the ROI.
But, you need to ask yourself what the cost is.
There’s always a cost to everything we do.
If you change one thing, then somewhere else something else will also change to compensate. This phenomenon is known as the butterfly effect.
In betting, when managing to increase the ROI of your selections, the most common compensation is a decrease in the quantity of the selections.
A significant increase in ROI will usually see a significant decrease in the number of selections. That means you're going to be placing a lot less bets.
And, that’s not always good!
Although the ROI is higher, our profit is being affected because we're placing less money over a period of time due to the lower number of selections.
The best way to explain this is with an example.
Using our original example, you started with a 25% ROI.
If you're getting 100 selections per month using this method and betting £1 on each selection then you're betting £100 per month (this is your turnover). Each month you're making a profit of £25 because your ROI is 25%.
Now you decide that you want to try and get a bigger ROI. So you get stuck in and research your selections until you're getting a 40% ROI.
Amazing.
But, this has cost you half of your selections. Now you’re only betting on 50 selections per month at £1 per selection.
That means your turnover is now £50 and your profit is £20.
What just happened!
You increased your ROI but your profit dropped by £5.
That's because the cost of increasing the ROI reduced the number of selections to a point where you're making less profit over the month even though the ROI is higher.
So, you need to get the balance of turnover and ROI right.
You will find your own level of comfort, personally I like to have a much higher turnover and lower ROI.
But most people prefer to go somewhere in the middle.
What's important is... check you're actually going to be making more profit next time you find a way to increase your ROI.
Best Wishes,
Michael Wilding
