Calculating the value of your reward points is essential when travel hacking. Since every flight and hotel you book has a different price, the value you get when redeeming your points will change. In an ideal world, you’ll always be looking to maximize the value of your points, but it’s not always that simple.
Loyalty programs make it easy to redeem your points and miles, but they don’t always spell out the exact value you’re getting. As a consumer, you need to establish a base value for your points. Once you have that, you can easily compare different redemptions to see if what you’re getting is worth it or not.
Here’s how to calculate the value of your points and what numbers you should use for the base value of one point.
How to calculate the value of your points
For many people, calculating the value of your reward points is challenging. They don’t understand the math behind it and get confused when taxes or additional fees are factored in.
Regardless of what loyalty program you’re part of, you need to figure out the value of one point or mile. Fortunately, the formula to calculate the value per point is the same for each loyalty program.
(Cash value of redemption – taxes paid on redemption) X 100 / points required = Cost per point
Remember that you would need to subtract any taxes or fees you need to pay out of pocket from the cash value before you make your calculations. For example, let’s say you want to book a round-trip ticket from Ottawa to Vancouver. The cash price is $600. However, booking via Aeroplan will cost you 24,000 Aeroplan points + $75 in taxes. That means the cash value of the redemption is $525, so your formula would be as follows:
$525 X 100 / 24,000 = 2.19 cents per point.
Since the value of this redemption is worth more than the established base value of 2 cents per point for Aeroplan, it’s worth redeeming your points.
Cents per point (or cpp) is the most common way to value redemption from points and miles.
The opportunity cost of redeeming points
Redeeming points for free flights, hotel stays or gift cards is awesome since everyone loves free stuff! What’s interesting is that many people view loyalty points as Monopoly money since the points they earned were “free.” Any redemption they get is considered a bonus. However, since loyalty points have a real value, you should treat them similarly to how you treat real money.
For example, you can redeem 24,000 Aeroplan points for a $170 gift card. But for the same number of points, you could have used them on that $525 Ottawa to Vancouver flight mentioned above. That’s a threefold difference in value!
As you can see, not all redemptions are equal in value, so you need to check the value of your redemptions to validate if it’s an acceptable use of points or not. The easiest way to quickly evaluate if a redemption is worth spending points for is to compare it against your base value for the points.
The value of one point for each travel rewards program
Before you start calculating the value of your reward points for each redemption, you need to establish a base value for one point. You would do this by comparing hundreds of flights and hotels in destinations all around the world at various times. With all of this data compiled, you’ll get an average value. That’s the base value you’ll use to compare all redemptions moving forward.
Obviously, no person in their right mind is going to do that. Who has that kind of time? Guess what? I do. As a travel writer, I’ve literally searched thousands of flights and have done detailed comparisons with many different loyalty programs.
Generally speaking, you should use the following base values when comparing redemptions:
- Aeroplan – 2 cents per point for business seats, 1.5 cents per point for economy
- Marriott Bonvoy – .9 cents per point
- American Express Membership Rewards – 2 cents per point when transferred to Aeroplan or used for the fixed travel program. 1 cent per point otherwise
- WestJet Dollars – 1 WestJet dollar = $1
- British Airways Avion – 1.6 cents per point
- RBC Rewards – Up to 2 cents per point when used for fixed points flights or transferred to other programs. 1 cent per point otherwise.
- Scotia Rewards – 1 cent per point
- CIBC Rewards – 1 cent per point
- HSBC Rewards – .50 cents per point
- BMO Rewards – .67 cents per point
- TD Rewards – .50 cents per point
- Hilton Honors – .50 cents per point
- Air Miles – 10.5 cents per point
You only really need to worry about the base value of airlines and hotel programs since the value of your redemptions will change depending on what you’re booking. The rest of the programs have a fixed value per point (although a few have additional redemption options), so it doesn’t matter much.
Basically, when redeeming Aeroplan points, you want them to be worth around 1.5 tp 2 cents each. For Marriott Bonvoy, aim for a value of 0.9 cents each. If the value falls below that, save your points and pay cash. Not only paying cash will save your points for a better value redemption later, but you will also earn points when paying for a flight or a stay.
If we go back to my Ottawa to Vancouver Aeroplan example, the redemption value was 2.19 cents per point. Since the value of this redemption is worth more than the established base value of 2 cents per point for Aeroplan, it’s worth redeeming your points.
Now let’s look at an example for Marriott. I recently searched for a stay at the Sheraton Wall Centre in Vancouver. The cash rate was $296 per night after taxes and fees. At the time of my initial search, the points cost was 40,000 Marriott Bonvoy points for a free night.
$296 X 100 / 40,000 = 0.74 cent per point
Since I value one Marriott Bonvoy point at 0.9 cents each, this redemption represents an 18% opportunity cost. In my opinion, it wasn’t worth using my points, so I decided to pay cash.
Oddly enough, a few days before my stay, I searched the hotel again, and I noticed that the points cost had changed and getting a free night would now only cost me 35,000 points. I quickly did the math to see if this was worth it.
$296 X 100 / 35,000 = 0.85 cent per point
While this value still fell below my target value of 0.9 cents per point, it was only a slight devaluation of 6%. I considered this a good enough deal and rebooked on points.
As you can see, once you know the formula to calculate the value of one point and have an established base value, it’s easy to determine whether a redemption is worth it.
Travel Hacking for Lazy People
- Part 1 – What is travel hacking?
- Part 2 – How to travel hack
- Part 3 – Credit card welcome bonuses
- Part 4 – Switching credit cards
- Part 5 – Travel loyalty programs in Canada
- Part 6 – Calculating the value of your reward points
- Part 7 – Creating a travel hacking strategy
- Part 8 – Earning rewards point as a family
- Part 9 – The risks and rewards of travel hacking
- Part 10 – Travel hacking walkthrough and tips
- Download the full eBook here