Points, Points, Points: How Much Are They Worth?

Premise

I consistently get asked about point valuations from friends and colleagues, on how much they are worth, and if a sale or a redemption is a good value. Additionally, sometimes people ask to purchase my points, and so I’m thinking about the perennial question about value. For this article, the terms points and miles are interchangeable – due to all the transfer options, and the fact that miles are simply airline points. I am inspired by a friend offering me what I considered below market rate for points.

How much are points worth?

IT DEPENDS

The answer is difficult to determine. It depends on your own valuation, where and how you redeem them, the various types, and more. I will take a crack at explaining my methodology when presented with various redemption options. Ultimately, it boils down to CPP or cents per point, which I use as a unit of account, a similar function to money.

What is CPP?

Cents per Point is the standard for measuring the “value”, which is dollar value divided by number of points required. For example, if you redeemed 100 points for $1 worth of travel or goods, then CPP would be $1 / 100 = $0.01, or 1 CPP.

Intangible Valuation: In-house versus outside pricing schedules

Pricing and valuation of points is different due to price discrimination across various users. If I’m booking for myself, or for friends/family, I assign an internal valuation which may be lower than what I would expect or charge to outsiders. This includes a friends discount, or perhaps the “brownie points” and intangible qualitative benefits of booking generously for loved ones and the lady’s family, for example.

When I do my manufactured spend, it comes to roughly a 1.1% cost of sale, or 1.1 CPP. This is for Starwood Preferred Guests points. Thus, I’d like to get as high a value for my SPG points, since the difference between the redemption (2-4 CPP) and cost price (1.1 CPP) is profit.

Thus, for outsiders, I’ll sell the points at 2+ CPP, but for friends and family I don’t need to make a profit, and thus would consider a 1.5 CPP or 1.1 CPP or even less acceptable. Or, I’ll take a comparative cash rate that they would otherwise pay, and discount it 5-15%. Currying favor and brownie points is important for in-house, but not for outside arms-length transactions.

Sounds good, How do I approximate a value?

It is all built around opportunity cost. If I’m giving away points below my cost or below my value, then I lose the ability to redeem those points on good value redemptions that are realistic. For example, I would redeem 25,000 or 30,000 for a $500-$700 hotel, but wouldn’t use the suite price (See Japan) that I actually get as my dollar value, as that would not be realistic. Without churning, I would splurge $500-$700 on a nice hotel, but I would never pay the thousand or two thousand dollar cost of the suite. Think about your best alternative option and use of the points, and use that as a baseline to guide your decision making.

Additionally, alternatives also include holds and future uses. If you are using points in the near future (or even moderately distant future), then the value of those points go up, since you have a purpose for them. If those points were otherwise sitting in an account without any determined future use, the value would be lower (think of a gift card to a store that you no longer shop at).

Conclusion

Like any difficult problem, the answer to point value is that it depends on a variety of factors. Point type, use, timing, options, alternatives, all play a factor in approximating the value, which is different from person to person. While this year (2017) has seen a decline in my churning, I hope to get back to it and start regularly generating again.

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