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Discussion about the cost of miles and how you value points

Discussion about the cost of miles and how you value points

Old Sep 14, 11, 2:53 pm
  #1  
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Discussion about the cost of miles and how you value points

There's been some ancillary questions about how people value their miles, as well as the points that they trade for US Airways miles. I've always used Lucky's thread as an estimate, but I'm curious about a couple of things and thought that this would be a good forum to discuss the true value of hits, particularly when we have to transfer five-figures worth of hotel points for a few lousy miles.

I'm kind of anal about how I value my points. For reference, when transferring hotel, etc. points to US Airways miles for a hit, I determine the value of the points that I transferred and subtract the value of the US miles that I receive, with the balance being the cost of the hit. If I dine or stay at a hotel and get US points, I also figure out the difference between the points that I gave up and the US miles that I earned.

Question 1: This year, I am going to buy my wife flowers from one of the online vendors rather than the pricey local florist (whose flowers are far superior). I am doing this with her full consent and encouragement, btw. I'll be saving money by using the online florist. Can I subtract the money saved from my total cost? Neither of us considers there to be much inherent value in the difference of the quality of flowers, for purpose of the promo.

Question 2: I have some promos where it is unlikely that I will ever use my points, or I don't value them highly. For instance, I have a few hundred thousand HHonors points, but my wife is at 1.5 million and earning them faster than we can count. We will never use all those points, so my points are largely irrelevant. Should I apply a discount to those points, or do I still have to assess them at full value because I technically could use them some day?

Mike
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Old Sep 14, 11, 3:30 pm
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Originally Posted by mikeef View Post
There's been some ancillary questions about how people value their miles, as well as the points that they trade for US Airways miles. I've always used Lucky's thread as an estimate, but I'm curious about a couple of things and thought that this would be a good forum to discuss the true value of hits, particularly when we have to transfer five-figures worth of hotel points for a few lousy miles.

I'm kind of anal about how I value my points. For reference, when transferring hotel, etc. points to US Airways miles for a hit, I determine the value of the points that I transferred and subtract the value of the US miles that I receive, with the balance being the cost of the hit. If I dine or stay at a hotel and get US points, I also figure out the difference between the points that I gave up and the US miles that I earned.

Question 1: This year, I am going to buy my wife flowers from one of the online vendors rather than the pricey local florist (whose flowers are far superior). I am doing this with her full consent and encouragement, btw. I'll be saving money by using the online florist. Can I subtract the money saved from my total cost? Neither of us considers there to be much inherent value in the difference of the quality of flowers, for purpose of the promo.

Question 2: I have some promos where it is unlikely that I will ever use my points, or I don't value them highly. For instance, I have a few hundred thousand HHonors points, but my wife is at 1.5 million and earning them faster than we can count. We will never use all those points, so my points are largely irrelevant. Should I apply a discount to those points, or do I still have to assess them at full value because I technically could use them some day?

Mike
There are obviously different ways to arrive at values for points, and it's also obviously a subjective decision to each person. It's hard to give a definitive answer to either question. I think your questions highlight how complex a valuation equation CAN be. For example, for Q2, you're hitting on a lot of economic principles that could be accounted for in valuing points, among them marginal utility. For example, earning 1000 points when you have a 0 balance in your AA account is not particularly valuable (at the margin) since there's little you can do with only those 1000 points. When you start having enough points for differing levels of redemptions, the marginal utility goes up (imagine: you'd never pay full price for 1000 AA miles when you have a 0 balance just for the heck of it; but if you need 1000 AA miles more to get that First Class Cathay Pacific award flight you've been dreaming of, paying full price is not a bad idea). Then, at a certain point, as you start having points that you could "never" use because you have too many, marginal utility begins to decline. (Of course, with some miles/points, there are floors for value at a certain point because you can redeem them for cash or cash equivalents, like Delta skymiles.) A lot of other people have noted another concern that is implicitly at play here: the declining value of banked Hilton points caused by constant point inflation. While it's not guaranteed Hilton will continue to inflate their currency, it's likely (and I think far less likely that Hilton would DEFLATE their currency). In effect, you might be running inefficiently as a rewards redeemer based on resource constraints (better to have a balance of airline miles and hotel points, etc. so that you get high redemption values AND minimize additional out-of-pocket cash expenditures on top of it).

Getting back to your questions, I think you can do what you want to in valuing your points. I don't see why you can't include the cost of the flower discount in valuing the transaction (since you were planning to buy those flowers any way). And I don't see why you should not apply a discount to the marginal Hilton points accrued, especially if you're making decisions on which rewards programs to focus on (e.g. stop using Hilton credit card for Hilton points and switch to airline card or cash back card, if this is your choice).

Last edited by andysiz; Sep 14, 11 at 3:36 pm
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Old Sep 16, 11, 9:12 am
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Thanks!

Question #3 is on cost accounting:

I traded 10K Marriott points, which I value at about 0.8c per mile, or $80, for 8,000 Wyndham points, which I value at about $90. All assumptions are based using the value of points on the best hotel that the top tier could get me.

In terms of determining the value of the Wyndham hit that I will receive, which of the following is the most valid way to do it?

1) It cost $80. I traded 10,000 Marriott points for the hit and I value those points at $80.

2) It cost $70. The Wyndham points were worth $10 more than the Marriott points, so I need to incorporate that savings into the price, since I saved $10 by not having to use my own Wyndham points (which I don't have).

3) I gained $10. The Wyndham hit was worth $90, I paid $80, thus I made a net profit of $10.

I won't say which way I'm leaning, so as not to influence the crowd.

Mike
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Old Sep 16, 11, 10:06 am
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Originally Posted by mikeef View Post
Thanks!

Question #3 is on cost accounting:

I traded 10K Marriott points, which I value at about 0.8c per mile, or $80, for 8,000 Wyndham points, which I value at about $90. All assumptions are based using the value of points on the best hotel that the top tier could get me.

In terms of determining the value of the Wyndham hit that I will receive, which of the following is the most valid way to do it?

1) It cost $80. I traded 10,000 Marriott points for the hit and I value those points at $80.

2) It cost $70. The Wyndham points were worth $10 more than the Marriott points, so I need to incorporate that savings into the price, since I saved $10 by not having to use my own Wyndham points (which I don't have).

3) I gained $10. The Wyndham hit was worth $90, I paid $80, thus I made a net profit of $10.
My response would be that it seems that valuing 10K Marriott points at $80, but valuing what they can be exchanged for at $90 is a bit odd. It seems by your description that the value of 10K Marriott points should be $90, since they can buy $90 worth of Wyndham points.

So I'd say the hit cost $90 -- the opportunity cost of the 10K Marriott points.

Of course, as a poster above noted, you have to figure out the marginal utility of the points. I'm assuming you have made those calculations already and decided that THIS batch of 10K Marriott/8K Wyndham is worth $90 to you.

That's my logic -- others may have a different take.
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Old Sep 16, 11, 11:14 am
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I've been thinking a lot about exactly this for the past few days (alright, I lied, I've been thinking about GS for weeks haha). The way I account for things is broken down into 3 categories:

1) Things I wouldn't have bought (Skymall's $2.99 toilet lock for a child I don't have, with $7.99 shipping or w/e it was) -- a dead loss of $11. Simple. That said I can always donate things I don't want to non-profits, so that may well reduce the cost.

2) Things I would have bought anyways but I ended up getting cheaper by going with a GS partner. Example: I'd never considered taking SuperShuttle from the airport to my apartment after the transit stops running (stupid bart and it's 11:50 cutoff). Therefore SuperShuttle cost me about $20 and a taxi would have cost me $40. If not for the promo I wouldn't have used SuperShuttle, therefore my cost is -$20. Sweet.

3) Points transfers, even from extremely low balance accounts I write off at $(Value of Original Currency x Original Balance) - $(Value of New Currency x Final Balance) - $(Conversion Fee, if any). Example: 2500SPG to 2500DM means that $(2500x2.5) - $(2500x1.6) = $22.50 cost.

I do that for points I didn't buy JUST for GS, but rather had anyways, regardless of what it cost me to acquire them. If I bought them just for GS ($55 for 5000 Choice Points => 1000DM) then I would account for them as $(Cost to Acquire Miles) - $(Value of New Currency x Final Balance). Example: $55 - (1000 * 1.6) = $39
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Old Sep 16, 11, 11:27 am
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Originally Posted by b8brooks View Post
My response would be that it seems that valuing 10K Marriott points at $80, but valuing what they can be exchanged for at $90 is a bit odd. It seems by your description that the value of 10K Marriott points should be $90, since they can buy $90 worth of Wyndham points.

So I'd say the hit cost $90 -- the opportunity cost of the 10K Marriott points.

Of course, as a poster above noted, you have to figure out the marginal utility of the points. I'm assuming you have made those calculations already and decided that THIS batch of 10K Marriott/8K Wyndham is worth $90 to you.

That's my logic -- others may have a different take.
I understand what you are saying, although I can't get the value of Marriott points to $90 because they can't actually be exchanged for the Wyndham points. Both can be exchanged for one hit. In this case, I exchanged $80 in Marriott points for one hit and, because of that, did not have to exchange $90 worth of Wyndham points. I don't have any Wyndham points, so it's all theoretical, but that's where I'm coming from.

Ow, my head hurts.

Originally Posted by arcticbull View Post

3) Points transfers, even from extremely low balance accounts I write off at $(Value of Original Currency x Original Balance) - $(Value of New Currency x Final Balance) - $(Conversion Fee, if any). Example: 2500SPG to 2500DM means that $(2500x2.5) - $(2500x1.6) = $22.50 cost.

I do that for points I didn't buy JUST for GS, but rather had anyways, regardless of what it cost me to acquire them. If I bought them just for GS ($55 for 5000 Choice Points => 1000DM) then I would account for them as $(Cost to Acquire Miles) - $(Value of New Currency x Final Balance). Example: $55 - (1000 * 1.6) = $39
Welcome to FT! You live in my favorite city in the world. I'm jealous.

I'm glad you brought that up, since that's another issue I'm struggling with. At first, I was doing exactly what you did. But I realized that I'm also getting US miles added to my account (I'm using the spreadsheet in this forum.) so, in fact, I'd be double counting them: first, by subtracting them from the cost and then, by counting them in my total. In other words, the first is the "cost" side of the equation, whereas the second is the "revenue" side, so to speak. So I'm trying to figure out whether, for the purpose of transferring points, it is more logical to subtract the value of the points I received from the points I traded (and not count the miles I received in the end total), or rather, should I count the miles in my total, but not subtract the value I received?

Now my head really hurts.

Mike
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Old Sep 16, 11, 7:51 pm
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Thanks! I've been lurking for a year or so, I love this forum.

You make an interesting point about the double-accounting when I purchase the points just for GS. It is double-dipping in the same way when I bought my toilet lock I didn't subtract the value of points received from the cost basis. I'm going to have to change my accounting in this instance.

However, in the transfer case, I think my accounting policy stands. Technically when you are transferring your cash outlay is 0. However, the dividend miles do cost you something, and that's the drop in currency value. Technically transferring 1000SPG to DM shouldn't yield 1000DM because SPG is more valuable. A "true" 1:1 transfer would yield 1562.5DM

At this point you have a choice of how to represent this loss. I chose to give it a cash cost. A 562.5 point loss is a financial cost of (1.6 * 562.6) $9.00. However you could equally well give it a cash cost of $0 and a net point loss of 562.5

I think either is equally valid. The cash cost for me keeps accounting simpler, as you did "gain" those DMs.

Mike, I have been following your blog by the way! Fun to see how other people are doing. I'm hoping to go for 100,000 this year also.
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Old Sep 19, 11, 9:45 am
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Originally Posted by arcticbull View Post
Mike, I have been following your blog by the way! Fun to see how other people are doing. I'm hoping to go for 100,000 this year also.
Thanks! Nice to have some virtual friends.

I try to update it daily. Keeps me out of trouble.

Mike
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Old Sep 19, 11, 3:39 pm
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I do exactly what mikeef does...glad I'm not the only one.


My "problem" is that I value the hotel points very highly by comparison to many other FT'ers. I value airline miles roughly on par with what other FT'ers do - about 1.5 cpm when considering a coach award vs. a trip I'd otherwise book with cash.

I hold my Marriott points until I'm well up in the 1.4-1.5 cpp range. I usually hold Starwood until I'm over a nickel. Priority Club...redeeming 50k next weekend at about 0.9cpp. I always value points against what the local hotel market is really doing, including any reasonable non-points-earning avenues (boutiques, Priceline, etc.).

So these hotel transfers are really painful to me. Sure, I don't mind burning 850 SPG for a hit. But cutting loose 10,000 Marriott is tough. That's a $150+ hotel room I'm giving up for that hit and 2,000 US Airways miles.

I might do the LQ, Carlson, Choice, etc. - whichever ones of those will let me buy points in the $50-60 range. Since I have no plans to actually stay in those hotels (I figure PC has me covered if I need a rural motel), then I'll just allow the cost of the points to equal their value, regardless of how an expert in those programs would really use them at the hotels.

In 3-4 weeks, I'll have a better idea if I need to execute ONE painful hotel transfer during the Grand Slam period. But until then, I'm holding off on my core programs beyond Starwood.
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Old Sep 19, 11, 3:46 pm
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Originally Posted by arcticbull View Post
2) Things I would have bought anyways but I ended up getting cheaper by going with a GS partner. Example: I'd never considered taking SuperShuttle from the airport to my apartment after the transit stops running (stupid bart and it's 11:50 cutoff). Therefore SuperShuttle cost me about $20 and a taxi would have cost me $40. If not for the promo I wouldn't have used SuperShuttle, therefore my cost is -$20. Sweet.
I'm kind of gripping on the Supershuttle one. The time-risk of SS scares me...I've read too many horror stories.

If any Supreshuttle users want to comment on my plan (or its riskiness) feel free. I'm spending one night in NYC with some friends in a few weeks. I arrive into EWR at about 7PM on a Saturday night. Ordinarily, I'd go one of two ways: I'd immediately jump in a cab and go straight to the hotel (midtown Manhattan). Or, if I was feeling like I knew what I was doing, I'd figure out the trains/subway. Probably depends on how many drinks I've had en route to EWR.

In neither case would I opt for Supershuttle. I think of it as the worst of both worlds - more expensive than the train and less efficient than a cab. But for the GS, I'm going to do it...total all-in cost seems to be about $5-7 higher than the train. I'm banking on two things:

(1) EWR-to-midtown is popular enough that there will be a Midtown shuttle, not just a "New York" shuttle that wanders through Jersey and Lower Manhattan, making stops along the way.
(2) Even at off-peak hours, there will be enough people to fill shuttles quickly so I'm not sitting at EWR for 30-45 minutes before we're rolling.

Any real experience with EWR Supershuttle anyone?

If the response is "It's awful, I'd rather have a root canal then spend an entire Saturday night with Supershuttle", then I may consider Supershuttle's private car service. But then the cost of the hit goes up: I'd be comparing that cost against a regular cab, and the differential is probably $30-40 instead of $5-6 (SS vs. train).
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Old Sep 19, 11, 3:51 pm
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Not much to add, but appreciate the points being made. It's really tempting with transfers and the like to just focus on the gain. Good to get a little math involved.
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Old Sep 21, 11, 1:10 pm
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Originally Posted by pinniped View Post
I do exactly what mikeef does...glad I'm not the only one.


My "problem" is that I value the hotel points very highly by comparison to many other FT'ers. I value airline miles roughly on par with what other FT'ers do - about 1.5 cpm when considering a coach award vs. a trip I'd otherwise book with cash.

I hold my Marriott points until I'm well up in the 1.4-1.5 cpp range. I usually hold Starwood until I'm over a nickel. Priority Club...redeeming 50k next weekend at about 0.9cpp. I always value points against what the local hotel market is really doing, including any reasonable non-points-earning avenues (boutiques, Priceline, etc.).

So these hotel transfers are really painful to me. Sure, I don't mind burning 850 SPG for a hit. But cutting loose 10,000 Marriott is tough. That's a $150+ hotel room I'm giving up for that hit and 2,000 US Airways miles.

I might do the LQ, Carlson, Choice, etc. - whichever ones of those will let me buy points in the $50-60 range. Since I have no plans to actually stay in those hotels (I figure PC has me covered if I need a rural motel), then I'll just allow the cost of the points to equal their value, regardless of how an expert in those programs would really use them at the hotels.

In 3-4 weeks, I'll have a better idea if I need to execute ONE painful hotel transfer during the Grand Slam period. But until then, I'm holding off on my core programs beyond Starwood.
It all got too complicated for me and I committed to using Lucky's numbers to do it. I have to balance off the fact that I tend to use my hotel points at very high redemption levels with the fact that there are some points that I may never use. For instance, I could acquire a bunch of Choice points and come up with an extreme value for them by staying at the best hotel, but I would likely never do that. I've resigned myself to the fact that my method isn't perfect, but for my purposes, it's consistent. Sigh.

Mike
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Old Sep 21, 11, 3:38 pm
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Originally Posted by sc flier View Post
If you only look at them as part of the final grand totals, then you can't judge the cost/value of each hit individually. If you don't judge each hit individually, then you aren't making a fair comparison to choose one hit vs another or even whether to skip some hits altogether and forgo the maximum GS11 bonus.

For a PC transfer, my cost is $60 and I earn 2K miles. But $60 is the total cost of the transfer -- not the cost of the hit itself. For me, there are two cost components to that transfer:
1. The cost of the 2K non-bonus miles.
2. The cost of the hit toward bonus miles.

In order to compare one hit method to another, I need to compare the second (hit) component of each method. To calculate that, I determine my value of the 2K non-bonus miles ($35) and subtract it from my total value of the points that I'm spending ($60). The hit itself costs me $25.

In the spreadsheet, I can log this one of two ways:
1. Enter my calculated cost for the hit ($25) and 0 for my miles.
2. Enter the total cost of the transaction ($60) and 2K for my miles.

The first method means that the non-bonus miles don't get added into the grand totals, but I really don't care about that. I bought those 2K miles outright (from myself) at what I consider fair market value. They simply don't figure into the GS totals at all. All I care about in the chart on the right side of the spreadsheet is whether the most expensive hits are worth their hit cost.

For other transactions, we may think of these as also having other separate cost components:
1. The cost of the non-bonus miles.
2. The cost of the hit toward bonus miles.
3. The cost/value of the product that I'm buying.

  • What is the hit cost of a DM Dining dine if you would have dined at that restaurant anyway?
  • What is the hit cost of a SkyMall purchase if you buy a 9v battery that you intend to use?
  • What is the hit cost of a SkyMall purchase if you buy a 9v battery that you don't intend to use?
  • What is the hit cost of an Audience Rewards ticket that you purchase and then resell on StubHub for more than you paid?
  • What is the hit cost of a $200/nt Hyatt stay in which you earn US miles rather than earning Hyatt points as you normally would? Would it be better to book a separate stay at a Rodeway Inn for $40 so that you can still earn your points at Hyatt?

If there's a better thread for this discussion, I'd be happy to have it moved over there so as not to clutter up this thread. There are some enhancements that we could make to the spreadsheet to better reflect the hit costs rather than total costs.
You bring up some excellent points. If I do end up valuing the points based on Method 1, I actually end up making money on some hits, since the value of the US Airways miles exceeds the cost of the hit. For instance, Network Solutions cost me $25.31 (after valuing the SPG points I earned on my credit card from paying for it). Using Lucky's chart, US miles are worth 1.6c each, meaning that those 2,000 miles are worth $32. I made $6.79 on this transaction!

I would love to hear more opinions, particularly from people who disagree with me (not subtracting the value of the miles from the cost of the hit) and hear more about their rationale. Of course, I want to hear from everyone, but I definitely learn more from people who disagree with me than those who agree with me.

Mike
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Old Sep 21, 11, 3:39 pm
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Originally Posted by pinniped View Post
So these hotel transfers are really painful to me. Sure, I don't mind burning 850 SPG for a hit. But cutting loose 10,000 Marriott is tough. That's a $150+ hotel room I'm giving up for that hit and 2,000 US Airways miles.
Not entirely. Unless you've maxed out your ability to buy points from Marriott, then 10K points are worth no more than $125. If you value your miles at 1.5 cpm, then 10K MR points would transfer to $30 worth of US miles.
$125 - $30 = $95 hit cost.

I consider Marriott to be the most expensive transfer option, though Carlson and Wyndham could be considered expensive since there is not an ability to directly purchase their points. But I still wouldn't equate a Marriott transfer to a $150+ room as long as I have the ability to replace those points for $125.

Similarly, the SPG points are worth no more than 3.5cpm as long as you have the right to purchase them at that price.

Only after I got all my numbers into a spreadsheet to do some calculations for me was I able to accurately judge which transfers make sense and which ones don't.

Also see my post in the Hotel Transfers thread.
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Old Sep 21, 11, 4:32 pm
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Source of the points doesn't matter: it's all about how you would otherwise use them.

And yes I've maxed both of those two purchases out (SPG and MR) before. I figure it's simple akin to getting a discounted rate to prepay a stay. They get a cashflow benefit. I get some cheap points and the "challenge" to use 'em fast.
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