Cents Per Mile

Discussion in 'General Discussion | Credit Cards' started by andhoova, Sep 11, 2013.  |  Print Topic

  1. andhoova

    andhoova Silver Member

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    I see a lot of posts were people are discussing the value of their points for a specific award. How do you calculate this?
     
  2. zphelj

    zphelj Gold Member

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    The short answer is 'in the manner which makes the most sense for you'. Lots of people have 'rules' they use but in the end they are their rules.

    I try and think big picture, leverage the current rules in play and not rely on one lone calculation. The game is complex; don't box yourself in.
     
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  3. andhoova

    andhoova Silver Member

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    Yeah, but how do I figure out how much value I'm getting out of my award ticket for a certain points currency?
     
  4. KathInJax

    KathInJax Silver Member

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    The problem is that you can start coming up with too many valuations. Examples:


    Cash Price - My recent coach redemption was $3,000 if booked for the exact trip. $3,000/60,000 = 5 cents per mile
    Probable purchase price - If I was paying cash, the best price for different flights was $1,200. = 2 cents per mile
    How much I would pay for ticket - I would not pay $1,200, the most I would pay would be $700. I would have to go a different time of the year. = 1.16 cents per mile
    What I would have paid for this specific trip - probably $0, because without the miles, I would not take the trip. = no value

    You can add in the amount of miles I lost by using points, instead of cash. This would be 11,000 miles.

    $3,000/71,000 = 4.2 cents per mile
    $1,200/71,000 = 1.69 cents per mile
    $700/71,000 = .98 cents per mile
    0/71,000 = no value

    You have to choose what makes sense to you.
     
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  5. servo

    servo Silver Member

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    All good points. KathInJax says it well, there are no definitive answers to point value. Everyone takes what makes sense to them and runs with it. Personally, I work in banking software, so I take my valuation to the extreme (think of the echo effect and slowness of that to really capture my intent).

    I personally look at the variance between the cost I paid for miles in a particular program versus the redemption value. I use the first method KathInJax mentioned, using cash price to points used, but I'm a bit more descriptive than that, and I don't bother with opportunity cost and other assumptions of what I WOULD have done if I wasn't using points.

    Confucius the Accountant says, "stick to the beans one can see, and count those". Therefore, my math looks like this:

    ((cost of cash ticket for same flight itinerary minus any award fees actually paid/realized divided by the number of points/miles redeemed) minus (cost of acquiring miles/points for that particular redemption divided by the number of points/miles redeemed) This gets you the cost per mile of the redemption, minus the cost per mile of acquisition.

    To give an example, back in March I took a last minute award on US from MCO-LAS. The cost was 36k miles or $837. I paid $110 for the close-in booking fee and other taxes + the 36k miles. The cost for me to acquire the 36k miles was nothing, because I got the USAirways card and used the 40k miles after meeting my minimum spend, which was one purchase, which while irrelevant, was $5. However, for the sake of the math, let's say I earned the 36k miles buying Vanilla Reloads at $3.95 per $500 at CVS, which is a 1x redemption - cost per mile is 0.00790. 0.00790*36000 = $284.40

    The math then: ((($837-110)/36,000) - (284.40/36,000)) works to 0.0201 - .00790 = .0122 or 1.22 cent per point/mile benefit.

    This gets really muddy when you have varying cost points to acquire, but like I said....to the extreme.
     
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  6. SuperKirby

    SuperKirby Gold Member

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    The cents (cost) divided by the points/miles.

    On top of other posters giving you excellent examples, here is another for you:

    For 50,000 points in a program, I can usually redeem for a $500 gift card. $500/50000 = 1.0 CPP (Cent per point).
    Or for 50,000 points, I can use it to book a flight to wherever, and lets say this flight actual cost is $1600 at the time of booking. My value would be $1600/50,000 points = 3.2 CPP.

    So my value is higher (over triple) with that flight booking. If that same flight was actually worth $400, then my CPP would only be 0.8 CPP, very low value. So as you can see, it all depends on what you redeem for.
     

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