What is the expected value of that?

When making any kind of financial decision, it can be interesting to look at the “expected value” of whatever you’re looking to buy. This can work particularly well for things like raffles and your sales.

Raffles

With a raffle it’s pretty simple. If you have a 1/100 chance of winning a $500 prize, the expected value of your ticket is $5 (1% of $500). I would guess that the cost of your raffle ticket is somewhere above $5 so they can make a profit.

It works on larger things too. If Publisher’s Clearinghouse is giving away $10M, and your odds of winning are 1 in 140M, then the expected value of your entry is around $0.07. If you have to use a stamp to send in your entry, it’s not a good decision for you to make (not to mention the value of your time relative to $0.07).

Sales

Expected value can help with forecasting sales numbers, too. Each week at GreenMellen, Ali and I spend a bit of time working on our “scorecard” for the past week, tracking key metrics that we want to watch as an agency. One of the items we look at is the weighed value of all of our leads, or our total expected value.

For example here, if we send out a proposal for $10,000 and we think we have a 75% chance of winning the work, then our expected value for that job is $7,500 (75% of…