Advice

ROI vs Turnover

(Last Updated On: June 3, 2012)

When we are looking at the selections we are betting, we often want to tweak them to try and make them generate a greater profit. In fact I don’t actually recommend doing this, but it is 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. I will explain why you are usually better not doing this in another article, today I want to look at what most punters focus on, and why it is a mistake!

What is the first thing that most punters look at when they are testing tips or betting systems, or designing their own?

Profit. That make perfect sense, but what is 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 will 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 is 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 we want to maximise the ROI then that makes perfect sense. Obviously if we can make a 40% ROI instead of 25% then that would be excellent. For every £100 in bets we are going to make £40 profit instead of £25 profit. At first glance it seems that all we should be focusing on is increasing the ROI.

But, ask yourself what the cost is?

There is always a cost to everything we do. If you change one thing, then somewhere else something else will also change to compensate. 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, which means that we are going to be placing a lot less bets.

And, this is not always a good thing!

It is not always good because, although the ROI is higher our profit is being affected because we are placing less money over a period of time due to the lower number of selections, otherwise known as turnover.

The best way to explain this is with an example.

Using our original example, we started with a 25% ROI. If we were getting 100 selections per month using this method and betting £1 on each selection then we are betting £100 per month (this is our turnover). Each month we are making a profit of £25 because our ROI is 25%.

We decide that we want to try and get a bigger ROI and change the selections until we are getting a 40% ROI, but this has cost us half of our selections. Now we are only betting on 50 selections per month at £1 per selection. Our turnover is now £50 and our profit is £20.

What just happened! We increased our ROI but our profit dropped by £5.

That is because the cost of increasing the ROI reduced the number of selections to a point where we are making less profit over the month even though the ROI is higher!

As you can see, 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. Most people prefer to go somewhere in the middle.

What is important, is that you make sure you check that you are actually going to be making more profit next time you manage to find a way to increase your ROI.

Michael Wilding

Michael started the Race Advisor in 2009 to help bettors become long-term profitable. After writing hundreds of articles I started to build software that contained my personal ratings. The Race Advisor has more factors for UK horse racing than any other site, and we pride ourselves on creating tools and strategies that are unique, and allow you to make a long-term profit without the need for tipsters. You can also check out my personal blog or my personal Instagram account.

8 Comments

  1. Surely you would just divide the average amount spent per month by the number of bets. In the example above when the bets drop from 100 to 50 just divide 50 into your £100 stake and you make £40 profit. An increase of £15 and not a decrease of £5 the way you do it.

    1. You can certainly also do this, but you will also be increasing your risk. Just because the ROI has increased doesn’t mean the strike rate and volatility has decreased. This example was assuming that the only change was the number of bets.

  2. I must be doing something wrong,I thought ROI was the amount back on investetment.

    I lay horses so tell me if this is right.

    Lest Say I lay 4 horses my stake is 20.00 each bet,I calculate my profit divided by my exposure to give me a ROI..iS THIS CORRECT?

  3. What you say is true if the only change is the number of bets. Roy’s scenario is equally valid. In this case your starting point is: I have a bank of £100 I am prepared to use each month. When I reduce the number of bets I also increase the stake: 50 bets at £2 each. Reducing the number of bets has enabled me to achieve the target ROI of 40% and has also increased my profit to £40.

    1. As you say Ian, this example is based on only if the number of bets change. In reality that is unlikely to happen but I wanted to show the argument for turnover being as important a measurement as ROI.

  4. Must be terrible not to be able to work out that if you have half the number of bets you can double your unit stake and make £15 extra.

  5. As there have been a few comments about when making half the amount of bets, you can just double your stake and make £15 more I feel I am compelled to add a bit of extra detail here.

    It is not just about the profit. Everyone is right, you can just do this, but there are also issues with doing this. Most notably you are now betting from a 50 unit bank and not a 100 unit bankroll. This significantly increases you risk of going bankrupt. To do this you would have to be comfortable in this increase in risk.

    The purpose of the article was to show how turnover is just as important as ROI to your bottom line. Getting the balance that is right for you is important.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back to top button
Close