How do you calculate cents per point (cpp) on a rewards credit card?

[galahad15]

Can someone please provide more info on how do you calculate cents per point (cpp) on a rewards credit card?  I have a general idea in mind about how it is calculated, I just don't know if the equation/formula that I am using is completely 100% right?  Thanks!

[Anonymous]

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@galahad15 wrote:

Can someone please provide more info on how do you calculate cents per point (cpp) on a rewards credit card?  I have a general idea in mind about how it is calculated, I just don't know if the equation/formula that I am using is completely 100% right?  Thanks!

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Pretty simple.  Divide the value of the reward if you pay cash by the number of points needed to get that reward

[Anonymous]

Look at the value in dollars and divide by the number of points it takes to get that value.  (ex. $500 for 50k points)  500/50000 = .01 or 1cpp

[galahad15]

Thanks everyone for the helpful info!  Also as a quick follow-up: so j/c, are cpp and % values functionally equivalent, or if they do differ depending on the nature of the rewards, under what kinds of circumstances (if any) would their calculations vary?

ETA:  sorry, don't mean to sound dense or ask a dumb question -- alas unfortunately, mathematics was not really my strongest subject, when I was in school...

[Anonymous]

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@galahad15 wrote:

Thanks everyone for the helpful info!  Also as a quick follow-up: so j/c, are cpp and % values functionally equivalent, or if they do differ depending on the nature of the rewards, under what kinds of circumstances (if any) would their calculations vary?

ETA:  sorry, don't mean to sound dense or ask a dumb question -- alas unfortunately, mathematics was not really my strongest subject, when I was in school...

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cpp are generally used when talking about (point-based!) redemptions, and varies depending on what you redeem for.   %s tend to used more on cash-back cards.

But the real measure of a card (for rewards, not bonuses) is really something like cents per $ spent, which takes into account both earning power and redemption value.

[Anonymous]

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@galahad15 wrote:

Can someone please provide more info on how do you calculate cents per point (cpp) on a rewards credit card?  I have a general idea in mind about how it is calculated, I just don't know if the equation/formula that I am using is completely 100% right?  Thanks!

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The Points Guy has a chart with many of the various programs that they update every month.  Many factors may cause you to adjust up or down how much the point values are worth to you, but I really like it as a quick and easy starting point.  From there I multiply the value times the number of points earned per dollar spent to decide which card to use.  So for example even though Hilton HHonors points are only valued at 0.5 cpp, if I earn 6 points per dollar spent on dining with the Amex Hilton Surpass card then that's a 3% return which is double the 1.5% cash back I get from my CapOne QS.  Of course YMMV.

Here's the link to this month's chart:

http://thepointsguy.com/2015/12/december-2015-monthly-valuations/

[Anonymous]

The question I have for you travel hackers, do you calculate cpp based on the value at the airlines website, or do you go on cheap tickets and see how much an equivalent flight would cost?

[Anonymous]

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@Anonymous wrote:
The question I have for you travel hackers, do you calculate cpp based on the value at the airlines website, or do you go on cheap tickets and see how much an equivalent flight would cost?

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'Travel hackers'?  Who and what are you referring to?

[PointLager]

This is how I do it:

Cash price $1500

Mileage award equivalent 60,000
Award taxes $100

Value per mile:
($1500-$100)/60,000 = 2.33 cents

The above is an example for United redemption on an economy European flight

Then apply to the card in question.

For example, United club pays 1.5x per dollar spent so I am getting 3.5 cents value on the card per dollar spent.

[Anonymous]

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@PointLager wrote:
This is how I do it:

Cash price $1500

Mileage award equivalent 60,000
Award taxes $100

Value per mile:
($1500-$100)/60,000 = 2.33 cents

The above is an example for United redemption on an economy European flight

Then apply to the card in question.

For example, United club pays 1.5x per dollar spent so I am getting 3.5 cents value on the card per dollar spent.

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The only thing to add onto this is to make sure you compare to the value for you. 

What do I mean? 

Let's say you can redeem 10K miles for a flight from Chicago to Seattle, which is a direct 4 hour flight that you can book on American airlines for 10K British airways avios. 

Ok, what is the "cash" rate that you are comparing it to? The rate of that exact flight? How about if there is a flight that you book for $150 on that route on Sprit Airways, but the AA flight is $300? Spirit is definitely a much worse flying experience, but you may not care. 

This works the other way also. Say you want to go to Hong Kong. You can redeem 67K American Airlines miles for a flight in first class on Cathay pacific. What value are you getting here? That first class seat sells for $20,000. Are you really getting 30 cents per AA mile? Likely not, because you would never pay $20,000 cash for a plane ticket. Ask yourself how much you would actually pay for that flight (which BTW is a bucket list flight that you should do!) 

Hotels are similar. OK, that Sheraton costs $300 per night and costs 10,000 SPG points. But there is a Holiday Inn next door that only costs $150 a night. Do you actually value the Sheraton stay higher? Maybe, or maybe not