We’ve been studying travel points, rewards, and perks for a while now.
And as we gear up to travel long and far again, we want to take advantage of all those wonderful points and rewards we’ve earned.
Have you ever wondered, “How much is a point or mile worth?” We have to! That’s why we want to explain how to calculate point valuations or redemption points.
The redemption value is a way to calculate the answer to that burning question.
Here is how and why you should calculate point valuations.
What are point valuations?
Point valuations put value to your points and understanding them can help you maximize your reward. We like the sound of that!
A few questions to ask yourself when evaluating the redemption value of your rewards points:
- How valuable are these points?
- How flexible are these points and how many transfer partners are there?
- What are your redemption options?
- How much would you buy points and miles for?
- What’s the average redemption value from 3 different bookings?
- How abundant is award availability?
How do I calculate them?
To determine the basic redemption value of your points, follow the simple equation below:
Redemption Value = 100 x Cash Price / Award Price
It’s pretty simple, if you can follow this equation, you can determine the redemption value of your points.
The cash price of your itinerary is what you would pay out of pocket for the same itinerary or a very similar one. Then, you divide that number by the number of points or miles it would take to purchase that itinerary as an award.
This number represents the redemption value in cents per mile or cents per point.
On most sites when you are booking, you’ll notice there is a spot on the page to view the booking in a cash price or as rewards or points or miles.
You can click back and forth to determine each amount. However, be aware that you should log in first so you can see the official number of rewards or points. Some sites will list an estimate of points or rewards you can use to book a stay or flight if you aren’t logged in.
Here is an example of how to calculate the redemption value:
To stay at The Confidante in Miami Beach for two nights in July, you can pay $195 per night or roughly 15,000 points per night. That’s a total of roughly $390 or 30,000 points.
Using our equation above, we’d multiply 390 by 100 and divide that by 30,000 points. The result is 1.3 cents per point.
Another example of how to calculate the redemption value:
To fly from New York to Seattle with Alaska Airlines for a weekend in July, you can pay $583.20 for the roundtrip airfare, or you can use 40,000 miles plus a small fee of $11.20. Other options include 20,000 miles and a fee of $383.20 or 10,000 miles and a fee of $483.20.
For the sake of this post, we’re going to use the first option.
Using our equation above, we’d multiple 583.20 by 100 and divide that by 40,000 points. The result is roughly 1.5 cents per point.
How do I know if the award is worth it or not?
Luckily, The Points Guy is a great resource for monthly point valuations, which gives you a benchmark to help you assess your own point valuations. Not only does the site list last month’s point valuations and this month’s, but it compares them to last year.
Here are a few tips to help you determine if your award is of value using The Points Guy as a jumping off point:
- If you calculate your redemption value to be higher than The Points Guy’s monthly valuations, lean toward booking as an award.
- If you calculate your redemption value to be lower than The Points Guy’s monthly valuations, lean toward paying cash instead.
- If you calculate your redemption value to be equal to The Points Guy’s monthly valuations, some of the other factors discussed below may help sway you one way or the other.
What about other fees?
When booking an itinerary, there may be additional expenses for booking an award. In order to account for these, we need to adjust our equation:
Redemption Value = 100 x Cash Price – Expenses / Award Price
Watch out for a few dreaded fees: the $5.60 security fee on flights, the dreaded resort fee, and other surcharges. Also, don’t forget other expenses from two categories: travel-related costs necessary to make your award itinerary operable and the opportunity cost of unearned rewards.
Travel-related costs necessary to make your award itinerary operable include any expense you wouldn’t have also incurred on a paid itinerary. The most common examples include positioning flights and airport hotel stays.
You also have to consider the opportunity cost of unearned rewards. What does that mean?
Depending on how you book an award, you may be ineligible to earn points or certain credits, and you can even be denied elite benefits that you already have. In order to consider this cost, you have to determine what your valuations would have been worth and then subtract that amount from the cash price as you would with other expenses.
Additionally, keep in mind that loyalty programs and points can change from month to month, depending on a variety of factors. Certain programs miles or points can increase or decrease in usefulness based on these changes.
Now that you’ve seen our guide on how and why you should calculate point valuations, what do you think? Did we miss anything? Leave us a comment below!