WHAT IS THE VALUE OF REWARDS POINTS?
10/29/2017 2:25:53 PM
What is the value of your rewards points?
By Benjy Shuter
It’s simple question that seemingly has an obvious answer: Your rewards points are worth the rewards you can redeem them for.
If that were all there was to it, this would be a very short article.
Luckily, I have much more to write about!
What I stated above is the most basic understanding of the exchange of rewards points. However, I’d like to dig deeper into the economic interplay of the rewards points economy.
Even the statement, “Your rewards points are worth the rewards you can redeem them for.” can be further elaborated.
Yes, your points are worth the rewards offered. A rewards program may offer a TV, a few nights in a swanky hotel, or an international flight for a certain amount of points. If you view rewards points as magical make believe, that seems like a great deal.
However, consider that the value of rewards points is not the things you can redeem them for, but rather, how much those things are worth in currency value. Anything you can get with rewards points, you can also buy with cash if you so choose. Therefore, every reward has a concrete currency value.
(Disclaimer: any costs, monetary or miles based, are purely speculative and estimated) For example, let’s say you got stranded in Las Vegas after a crazy bachelor party and you want to fly home to New York. You have crummy friends (especially Todd, I mean can you even believe that guy? Don’t even get me started), so they didn’t even notice you weren’t on the plane with them. You could use 25,000 points to get your ticket home. You could also buy the same ticket for $250. That means that 25,000 miles are worth $250, or your points are worth 1 cent each. This is often referred to as cents per mile or CPM.
Going even further, not all rewards are redeemable in the same proportion of miles to dollars; in fact, almost none of them are. In other words, your points will not always be worth 1 cent each. In general, things that cost less money will have lower CPMs and things that are more expensive will have higher CPMs. This means that if you want to use your points on a new microwave, it likely won’t take many points, but your CPM will be dramatically lower than 1 CPM. If you want to use them on a roundtrip, business class, international plane ticket, it will cost you a whole lot of points, but the CPM will be better than 1.
This valuation is very straightforward. It’s completely dependent on the whims and changes of the rewards program your points belong to.
There is, however, a way to expand your options with your rewards points. If you can sell your rewards points, you can circumvent the limitations your rewards programs has imposed on them. If you can convert your points to cash, their currency value becomes literal instead of symbolic. Without another person involved, your points may be symbolically worth 1 cent each, but in reality, they only have that value if they are being exchanged for a plane ticket. With another person willing to buy your points for 1 cent each, you can actually receive their value in the cash amount that you measured them in.
Calculating how much your points are worth gets complicated when you introduce other people into the equation. With a rewards program, it’s very clear cut. Your 25,000 points are worth one plane ticket, or two microwaves, or whatever else listed in the rewards program. With people, valuations are more subjective. Every person has their own reasons for wanting points, and a different judgment on how much they’re worth.
On the human side, the popular value of each kind of rewards point is constantly fluctuating. This is due to supply and demand. The improvement your one program, and/or others getting worse, will push the value of your points up. If your program becomes worse-the rewards they offer aren’t great compared to other programs, or a popular reward becomes unavailable-your points’ value may go down. If you want an accurate read on the value of your points, you have to keep your eye on the fluctuations of your rewards program.
Another very important thing to keep in mind is that rewards points are not free. You accumulate miles by making choices. Every time you choose to use a card or an airline for their points benefits, you are using that as a factor not to choose their competitor, and whatever benefits that competitor offers. In essence, you’re forfeiting the whatever incentives were available to acquire more points. That forfeiture is a cost.
Another way you pay for points is with time. If you are getting involved in the points trade beyond the most casual sense, it requires a serious commitment of your time and attention. Your time has value. It’s likely that you sell your time every day to your employer. Your hourly wage creates a price point for how much your time is worth. You may be tempted to compare your commitment to the miles trade as a hobby that you do in your spare time. What you should really be likening it to is a part time job. So based on how much you value your own time, what wage would you accept for a part time job? If you make $200/hr as a therapist, you probably wouldn't spend your time off flipping burgers for $7.50/hr. The number you come up with, subtract it from your points valuation equation. Whatever you could, or feel that you should, be making to take the time to devote to your points trade is another cost.
One of the biggest time losses, and therefore value losses, in the points trade is hunting down interested parties and negotiating the best deals. The points trading community is scattered far and wide. It’s also quite insular. It can be a real labor tracking down someone to deal with, and even then, you have to decide if you like what they’re offering. If you don’t, you face the decision of either taking a deal that you don’t really want, or having to go through the hassle of finding someone else.
At Urwex, our goal is making it easier to maximize the value of your points. We’re creating a rewards point marketplace. Our site is intended to be a hub for anyone involved in the rewards points community. At Urwex, you can post your points as a listing, and any interested users can make you offers. You can negotiate with those users to get the best deal possible.
A site like Urwex inherently means a reduction in the temporal “cost” of your rewards points. With a thriving market already in place, the legwork of tracking down someone to deal with is no longer necessary. With so many users, you can also choose from a wide variety of offers. Without the pressure of a limited pool of options, you can be sure that you’re getting the most for your points.
In the near future, Urwex is going to make it even easier to trade in reward points. We’re implementing a broad suite of Broker Tools to help navigate the complexities of the marketplace. With broker tools at your fingertips, the points trade won’t seem quite so daunting.
So, at the end of all this, what are your points worth?
The short answer: it’s up to you. The longer answer: it’s a delicate interplay of what you can get for your points, and what you’re willing to accept for them.
With Urwex’s help, your position in that balance becomes much stronger.