When we are betting profit is often considered the bottom line. This is understandable because we all want to know how much money we are going to make in the long-term.
If there was another way wouldn’t you want to know what it is?
Did you know that there are some problems when we look at profit figures on their own!
These problems occur because profit does not tell us everything!
The two most crucial things it doesn’t tell us are…
- How many units we need to have to bet with
- How much we are risking
Let’s look at these two things a bit closer.
If we have selections that have given a profit of 100 units over a month then we are going to be thinking that these are the most awesome selections ever!
What if I now told you that you need to have a bankroll of 1000 units to bet these selections. The profit is still great but it is not quite as awesome as we originally thought. This is why it is important to know how many units we need to bet with.
How about if we had two different types of selections and over a month one made 100 units while the other made 20 units. At first glance we would definitely say that the 100 unit profit selections are much better!
But what if I told you that I had risked 200 units to get 100 units of profit whereas for the other selections I had only risked 5 units to make 20 units profit. Once again we see that the 20 unit profit service is actually excellent.
Well the good news is that there is another way to assess selections and you may find that you prefer it to profit!
It is called Return On Investment or ROI for short.
The ROI shows us exactly how much we are making for every 1 unit invested. In effect it levels the playing field. When using ROI it doesn’t matter whether a selections require more units to bet or if they risk more for their profit.
ROI is how much profit is returned compared to how much you have bet. Looking at our earlier example of the two selections, one making 100 units profit and the other making 20 units profit. We get ROI figures of 50% for the 100 unit profit selections and 400% for the 20 units profit selections.
We can now see that in terms of making a return on your investment the 20 unit profits service is eight times better!
When looking at ROI you can compare selections directly with each other without any bias.
Next week I shall take a look at how you can calculate ROI for yourself!
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