The relation of profit/loss to the money spent. In other words, profitability is an index for measuring financial success (operational profit) in relation to the costs of running the business.
Profitability is THE key indicator that makes betting success measurable and controllable.
We reiterate: Measuring OPERATIONAL Profit!
Profitability measures success connected to the operation (running costs) of the business (not the start-up capital, and also not the turnover of all stakes).
Stakes are strictly speaking just short-term deposit payments which are returned to the bettor should his bet win. Investment (start-up capital) can be anything – some people may prefer a higher bank than others. However, profitability is the same for all, and therefore a much stronger success indicator than any ROI or yield calculations.
Again, in an ideal world, one would factor in the costs of power, heating and light; apply an hourly rate to the time spend in all aspects of the venture; even the food you eat at your work station.
However, to keep it simple, we only factor in the amount of stakes lost [the money spent operating your betting venture].
In contrast to the yield, where the turnover of all bets counts, or to the return on investment, where the starting capital counts, profitability is all about the truly invested money (money lost or spent running the betting business).
It is, therefore, the most important and realistic index for sports bettors to quantify the overall financial reward they receive from their betting ventures.
Back to our example: Five of the 38 bets lost. The sum of all money lost, ∑ ML, therefore is 5 x 20 unit stakes per bet = 100 units lost. If you remember, bank growth was 65 units.
Profitability in this example is 65%
Understanding the Terms: Yield, ROI, Profitability
We sincerely hope that your understanding of the three different indexes, yield, return on investment, and profitability is now crystal clear.
Summary of the Exercise
Our bettor placed 38 bets with stakes of 20 units each. The total amount staked [Capital Employed] was 760 units (38 x 20). 33 of the bets won and 5 of the bets lost; the net result [Profit] was a bank growth of 65 units.
The starting bank [Investment] was 200 units. The sum of all money lost [Running Costs], ∑ ML, was 100 units.
By the way, the betting odds although not mentioned anywhere were 1.25. Otherwise the good hit rate (33 out of 38 bets) would not have been achievable.
The Yield in this example: 8.55%.
The ROI in this example: 32.5%.
The Profitability in this example: 65%.
The betting odds were very small: 1.25 and therefore the turnover to win 65 units pretty high which led to a small yield: 8.55%, but 65.0% profitability!
5 of 38 bets lost, 33 bets won. Hit rate: 86.8%
Can you see that there is a connection between hit rate, odds, yield and profitability?
Measuring your betting success is absolutely essential. You should always be in a position to know whether all the time, effort, and money you have spent is actually worthwhile.
Let’s do another Exercise
Our betting enthusiast starts with an initial bank of 850 units and places 50 bets with stakes of 10 each at average odds of 3.33.
17 bets win, 33 bets lose.
- What is his hit rate?
- What is the yield, return on investment and profitability in this example?
- Is this a ‘riskier’ strategy than the earlier example?
- Can you judge the risk of a strategy by looking at the yield, ROI and profitability numbers? What is the connection?
Try to work out the answers yourself before downloading them for free below. You’ll also find more exercises to test your newly learned skills!
Practice, Practice, Practice!
Yield, ROI (Return on Investment) and Profitability
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If gambling is a full-time job for you then weigh up the results against the salaries of other jobs you are qualified for or have a chance of securing. If it’s a hobby or part-time job, again compare the final income with what you could have earned elsewhere in the time that you’ve spent.
As always, thanks for reading! Feedback and comments are always welcome, as are shares, loves and likes in social networks! 🙂
If you have enjoyed this article then why not visit What is a Bet? What are Odds? What is a Stake?, another informative piece containing vital ‘need to know’ definitions, including how to calculate mathematical advantage.