ROI and Yield – meaning and usage
ROI (Return On Investment)
We utilize it to measure effectiveness of investments made. To calculate ROI we use the proportion of investment income to the amount invested. In betting, in particular, it should be calculated as proportion of increase/ decrease of the ‘bank’ to the initial amount of the ‘bank’. When using the word ‘bank’ we mean the amount of money destined for the particular campaign or for the whole betting process.
Example: To start the NFL season we separate $1,000 that we’re going to manage for specific financial discipline, based on predictions delivered by some capper’s service. These $1,000 we’re going to use as our ‘bank’ for NFL 2016/2017 campaign. After any bet settlement we could calculate the rate of our ROI for this campaign. Let’s say the first week we earn a profit of $150 so the total bank amount equals $1,150. Then dividing the growth of $150 to the initial investment of $1,000 we have a 15% ROI. After a month of playing, if we have total ‘bank’ amount of $1,400, these would mean that we’ve managed a 40% of ROI.
In this example you see that ROI is an indicator that is strongly depended by the time the ‘investment’ works. So when using ROI we should always mention the referred time interval. Other factors that influence ROI are:
1. The correlation between the amount of the bet and the total ‘bank’ amount.
2. The number of the bets for the time interval given.
In case of several bets of $15 each and a ‘bank’ of $1,000 then the financial effect we earn, correlated to the total ‘bank’, would be insignificant, i.e. ROI would be very low. A big number of bets (not depending to single bet’s size) could lead to a high financial effect. This effect proportioned to the initial ‘bank’ gives a high rate of ROI.
Having these two examples in mind, we may conclude that when using ROI indicator we should always specify the time period it’s related to and the number and total amount of bets. In case of negative financial effect after betting ROI will turn out negative as well. Then we lose a part of our investment and we talk about ‘DE capitalization’.
Yield serves to measure profitability of the bets we’ve made. It is the proportion of our profit to the turnover, i.e. to have a percentage we divide the total amount we’ve earned to the total amount of our bets. Yield is mainly used by the advanced players and for longer periods. To be objective it has to be calculated for number of tries that is ‘high enough’.
Example: We’ve made a turnover of $50,000 and we have a $600 profit. That means we reached a Yield of 1.2%. This is the real effectiveness of our playing. If we’re losing Yield indicator will be negative, too.
While using Yield there’s no need to define initial amount of the ‘bank’. The referred in the example turnover of $50,000 can be reached by an intensive utilization of a relatively small ‘bank' or by having a big ‘bank’ and higher amount of the bets.
But if in the same situation, with a turnover of $50,000 and a profit of $600, we decide to calculate ROI then the turnover won’t matter. What would be important is the amount of the ‘bank’ we’ve used to reach this rate of ROI. If we had a $2,000 ‘bank’, ROI would equals 30%, but with a $4,000 ‘bank’ ROI would turn out to be 15%.
Everyone for himself decides which one of these indexes to use to measure his own game. It depends on particular opportunities, aims and tasks followed and the applied betting model. If you like to restrict to a certain amount and keep track of it then you should pick ROI. If the ‘bank’ for you is relative and you can afford to overflow resources from one campaign to another then in a long-term you should better use Yield.