The Geek, you are, of course, right. I regard the fomula for Avios valuation in any transaction to be as follows:
V = 100 x (Pc - Pr + E) / (Ac + Ar)
where:
V is the value earned from the Avios spend in pence per avios
Pc is the payment required for a cash ticket (see notes below)
Pr is the payment required for an equivalent reward ticket
E is any additional value (or, if negative, cost) attached to a reward booking compared with a cash booking (see notes below)
Ac is the avios earned on a cash booking
Ar is the avios spent on an equivalent reward booking
Most assessments of avios valuation mistakenly fail to include E and Ac, which can fundamentally change the equation. Also, some judgement needs to be applied in applying value to these figures.
In particular, Pc should be capped at the value you would be prepared to pay for a boradly equivalent cash flight. It's not relevant that the cost of a First return is £5,000 if you only buy First tickets when they fall below £2,000 in the sale, for example. Also, if you are flexible in your dates, you should use the cheapest flight on an altenative convenient date. If you don't mind LCCs or a different airport, you need to reduce Pc accordingly. And, if you just want a holiday but have a range of destinations in mind, you should take the cheapest sensible flight to the cheapest destination as your value.
E is also tricky and requires considerable judgement. You might have uncertain plans, in which case you may put a large monetary value on flexibility. If you are using a 2-4-1, you need to charge something - at a minimum you should use -£199, the annual fee for the BA premium card. You might be prepared to pay extra for tier points, too; if so, adjust E downward in accordance with the price you would be prepared to pay if tier points could be bought.
So let's put this together for me, a Silver, on a flight I have booked for a cycling trip to Tenerife on fixed dates using a 2-4-1. Tenerife is too long a flight for me to sit in economy and, by the time I've paid for bike transport and suitcases, most LCCs end up being more expensive in any case. So it has to be Club Europe. I want to cycle, so I'll pay the full cash price. I don't need tier points or flexibility so I don't need to adjust Pc.
Checking current pricing on my dates, Pc is £1,088 (for two); Pr is £100 (for two); E is -£199 (my 2-4-1 cost); Ac is 3,575 x 4 = 14,300 (silver earn rate); and Ar is 34,000 (off-peak).
But wait! I would have earned further avios at 3 per £ by spending cash with BA on my Amex. That means I need to add 3 x (1,088 - 100) = 2,964 to Ac, which makes Ac become 17,264.
So I estimate my valuation at:
V = 100 x (1,088 - 100 - 199) / (17,264 + 34,000) = 1.54p
I'm pretty happy with that result. Much better than going to Sainsbury's. Now I just need to start training properly so I don't bonk half-way up Mount Teide.