At the end of last month there was a incredibly small window of opportunity to redeem Hilton points at Amazon for 0.5¢ per point. One thing I noticed was some people saying the deal was bad because they value Hilton points at X amount per point, some of these valuations were (in my opinion) absurdly high and made me worry that readers weren’t properly valuing their points. After speaking with some of these readers, here are some of the more common valuation mistakes made.
The reason I think points & miles valuations are important is that in many cases it’s possible to effectively cash out your points, whether it be from For the context of this post we will be primarily talking about Hilton points and opportunities, obviously this is equally applicable to other loyalty currencies.
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Nobody Pays List Price
When looking at valuations, one common thing people will do is look at how much a certain redemption would cost if you’re paying cash. For example a property might cost 10,000 in points or $150. That’s an easy 1.5¢ per point in valuation. Unfortunately that doesn’t take into account any stackable opportunities. For example with Hilton at minimum you should be getting:
- 2% cash back when using a rewards credit card
- 1%+ cash back when going through a portal
In addition to that you’re also earning elite night credits on a paid stay and points. At minimum you’re getting 10 Hilton points per $1 spent. In reality Hilton always has additional promotions you can stack it with. There are frequent American Express offers for different Hilton brands & you can currently get double or triple points. So on that $150 stay you’re actually getting:
- $4.5 in cash back
- Elite night credit
- 3,000 Hilton points
If you use your own valuation of 1.5¢ Hilton per point that’s $45 in Hilton points for a total discount of $50. Even at a 0.5¢ valuation that’s still $15 in Hilton points. You’ll note I’m actually being conservative because if you’re a base member (e.g not silver/gold/diamond) you can actually earn 10% cash back and Hilton frequently lets you stack for even more points.
All of the above also assumes that you’re booking direct. If you’re not booking direct then you have even more options. We’ve talked about how to stack deals with Hotels.com to save 33%+ before. Other online travel agencies will often have sales/special offers as well.
Would You Stay In That Property If You Were Paying Cash?
When I’m not using points I find it rare that I end up booking a cash stay at chain hotel stay (unless there is a lucrative promotion) as other hotels are either cheaper, look nicer or are in better areas. The majority of ‘value’ when it comes to award bookings also usually happens at the low and high end (e.g properties costing 5,000 points or 95,000+ points). If you’d normally never book a hotel costing $600+ per night then it’s important to keep that in mind when valuing points. I find it easiest to think “if this hotel was on sale, how much would I pay in cash” and work backwards from there.
Most Brands Sell Points/Miles
Most loyalty brands now sell points and miles. For example Hilton sometimes has a points sale where you get a 100% point bonus, this means you can effectively purchase points at 0.5¢. I find it strange how many people will value Hilton points at some absurd rate like 1¢ per point, but then not want to purchase any at half that price. Obviously people have limited vacation days and if you already get enough points from other lower cost sources I can somewhat understand the argument but it’s still a stretch and even more so when those same people have cash stays where points could have been used.
Our Verdict
I understand that this sort of min/maxing isn’t for everybody and can ruin some of the enjoyment of this hobby. That being said it’s worth spending a small amount of time on this sort of thing so you make rational rather than irrational decisions. For a lot of people there is a reason they wouldn’t normally take expensive luxury vacations, yes this hobby does give you the ability to do that but would you be better served by spending less points/miles and turning some points into cash (e.g American Express Membership Rewards points into cash at 1.25¢ via Charles Schwab Platinum) to help pay off your mortgage sooner? You might decide that this hobby gives you the financial freedom to take those vacations that are a bit nicer, just make sure it’s a rational decision and that you don’t let lifestyle creep get the better of you.
Different strokes for different folks they say. If I needed the money, I would go for the cash reward cards. However, getting travel points makes me use them to travel, when otherwise I might just sit around and increase my bank account balance. Boring. I need the incentive that forces me to take the travel adventures I might otherwise pass up. So far I have yet to regret a single trip, and just passed the 50 countries mark.
Miles and points are pseudo currency issued by the corresponding companies.
On the up side, it escapes hotel tax that can go above 15% in bigger cities. Also, it creates a cheaper way to purchase those high margin luxury services. The reason why people get very high cpp on higher end products is because they have very high margin on those services. It’s priced by value to customer rather than cost of goods sold. Points is a way for companies to fill those luxury availability without having a mark-down on price and hurt their perceived value.
On the down side, points and miles limit your purchasing power to the selected goods and services offered by the companies since most valuable use (high cpp) are usually to redeem for their product and services. Points and miles are less flexible than cash, and they tend to depreciate faster as well. It’s not a good form to store your wealth.
Another consideration that I’d like to add is the cost of hassle. Before this hobby, travel was “easy” in that I went on expedia, looked for the cheapest reasonable option, and booked it in five minutes. Now I go through multiple loyalty programs, check availability (with much disappointment), and contemplate lots of date, routing, order of itinerary combinations. I might get 3cpp from my Hyatt points (yay!) but the work and stress required go up more than tenfold. If I impute the fair market value of my time, it greatly reduces the value I get from using points.
I can relate to this. And this is why I primarily used cashback credit cards earlier in life. I threw away 150k MR platinum offers because I really don’t travel much and get very frustrated trying to book award travel. I’ve only started collecting MR since finding out they can be cashed out via schwab platinum.
If you max out Hilton points at a high end resort or an all-inclusive resort and get the 5th night free and tax/resort fees included you could easily get over 1cpp.
I don’t disagree that you can, but it’s a matter of whether you’d normally pay those cash rates and if most people are actually making those redemptions or not.
> I acquired them from sign-up bonuses so I’m not paying 0.5 cpp for them.
Well by not turning them into Amazon credit you have an opportunity cost of 0.5 CPP.
One thing I often see overlooked in these valuation discussions is taxes. The points earning on the $150 stay is considered but the 15-20%, or more -Cincinnati- in taxes avoided is not.
I disagree with the comments crowd that states points should be valued at what you’d pay for the redemption. To use my usual example: I’d never pay more than $5K for a car, because personally I drive used cars and don’t want to pay for bells and whistles. Now if I win (including taxes and maintenance) a Porsche tomorrow that sells for $100K, the true value of that car to me is not “$5K” (though it’s not likely to be $100K). The Porsche provides far more options and a better experience than any $5K beater car will provide. Therefore, my “actual” value of the car is based on my personal experience of enjoying that experience ($X) + the value I would spend ($5K) buying a car. What that number truly is is personal for all of us. The same goes for airline seats and hotel rooms.
To make it simpler to understand, if somebody was willing to sell you a porsche tomorrow – how much would you pay?
$5k 😀
Can’t really use this Porsche example as analogous because after you buy the Porsche it has resell value.
You can, just add a stipulation it can’t be resold/rented etc.
People are irrational about hotels often. They are just a place to sleep. All I want is a decent comfortable room that is clean. I never do air bnb because I am fundamentally opposed to a product that distorts the housing market, so I base my values off the cheapest hotels that have no negative clealiness reviews. Chains are often the best because they’ll switch my room no problem if it’s not clean when I checkin. Other than that, I count points for how many free nights total I can get. The more free nights, the longer I can stay and the better the credit card bonus is.
That’s your personal valuation. Some people value a suite because they need more space for a family. Some people require specific locations regardless of price, whether for business or for pleasure. And some people value amenities such as a quality breakfast included.
Don’t confuse your rationality with universal rationality. You’ll be likely to irrationally value things yourself, since you consider your own choices as absolutes instead of in-the-moment preferences.
I suppose car rentals distort the car market, Blockbuster and now Netflix distort movie theatre and radio and Spotify distort the music industry. What’s your beef with Airbnb? Do you own a hotel or have neighbors who Airbnb their place too often for your liking?
This is a good post. Hotel points are the hardest to value since hotels also give out points like candy when paying cash.
Marriott with Platinum Premiere – 17 points on the base stay – 6 points using a Marriott Card – 500 – 1000 point “welcome gift”
So if I pay $300 for a room that can easily be almost 8k in points earned which at just a 1cpp valuation is $80.
The valuation really depends on what you’re going to use the points for. If you just go on road trips and stay in cheaper hotels, there’s not a ton of value. However if you’re flying and staying in high end properties there can be a ton of value. Marriott points are most valuable (to me) for 5 night stays in high end properties, I just spent 240k points for a 5 night stay at the Ritz Kyoto, which would have been $5k cash. After taking out potential points earned on the $5k it comes out to about 1.5 cpp which isn’t bad but at that higher end of the scale.
I don’t travel enough to know my scores such as OMAAT points out. When I travel my 2-3x/year, I generally run a quick search on “best UR/MR/whatever hotel point use” and make inferences from there.
Thanks, William for pointing out that the point/miles game is not straight forward and should look at all angles before redeeming them.
Every time I look into redemption and options to get the maximum out of the money spend, I find something new way or opportunity. That is why I subscribed to Doc and other points/miles blogs, to not miss out on special deals and stay informed on what is possible and changes.
Of course everyone has their own goal, what they like to do with their points/miles but do the math before redeeming them. Want to spend 60,000 miles to save $600 on a economy flight ticket? Sure you save $600 but those 60,000 miles are worth more with any airline. Yes you may got them with a signup bonus with not much effort. But it takes a while until you can do that again and in some cases can strain your relationship with the bank as more post now indicate banks are cracking down on churners.
In my opinion, points/miles are for special opportunities where you get a good deal for something you planned to do and/or your dream vacation you would never pay with money. With points/miles you have to be patient (maybe not too long as they may devalue after a while or expire).
I personally would not redeem point/miles for cash even if the value is equal or maybe more than to what you get for flights. I worked hard to get them, cashing them out that just goes away to easily.
If points/miles are to complicated you want to opt for cashback cards.
At the Hilton example, yes your return when using a Hilton credit card or without Hilton credit card is 10% or more in return. But unless you travel for business and can stay at Hilton most of the time, this is not something to look at. As mentioned there are usually non-major-brand properties better/cheaper and/or closer to where you want to be. I have never came across a listing where the major brand hotel did cost not more than 10% more than a non-brand hotel with similar features.
What is the benefit of using the points/miles/cashback to pay bills? I see these rewards as an reward to use them for vacation, so that I ideally don’t need to use my income for it for vacation.
Using some points to pay bills when redemption values justify it, and vacationing for free are not mutually exclusive. I cashed out 160k Hilton points for gift cards to cover my groceries for the next 3 months, and will continue to travel for free with my other points. People were just salty about missing the deal and thus bragged about their higher cpp redemptions.
Well if you can afford to spare points for that. It is already hard enough for me to get enough points/miles for a free vacation, even with sign up bonuses. Those points would be for me/us just enough for one month of groceries.
“I personally would not redeem point/miles for cash even if the value is equal or maybe more than to what you get for flights. I worked hard to get them, cashing them out that just goes away to easily.”
And that is fine – but it isn’t rational, it is a sunk cost fallacy.
Enrico seems to be using the points account as a vacation savings account. Having a vacation savings account is not a bad idea, but you can have a real one at a bank paying 2.5% interest, so saving up points is only a reasonable thing to do if they are worth considerably more for purchasing travel directly than cashing out.
If they cash out at the same or better rate vs travel, then absolutely cash them out and put that cash in a savings account earmarked for vacation.
Yes, it could be helpful for some to use it as a form of mental accounting to force them to make decisions regarding travel they would hesitate to otherwise – helpful, but not rational.