You are currently viewing Basics of rewards value: definition, calculation method, variations

The VALUE is one of the most important concepts in the world of travel rewards. It’s how much money you save with your rewards, expressed in ¢/pt. It’s vital to understand for those who want to at least know the basics, but especially for those who want to maximize the free travel they get!

It’s so important to know how to do the math correctly in the world of travel rewards (literally 1 of the 6 most vital things)… and seeing how many people have unfortunately closed their HSBC card with it made absolutely no sense, I think we’ll do more content about the calculations aspect. It’s extremely important and it’s really very easy if you know how.

Here are the basics of rewards value.

(Many of these concepts are very basic, but it’s to make sure everyone knows the important basic things. You have to start somewhere if a subject is new to you, it’s normal! And if not, it’s a good reminder for everyone too! We’ll do a free webinar for beginners in April, you can save your spot right away!)

 

Definition of rewards value

The value of rewards is simply is how much money you save by using your rewards.

The monetary value of what you get in exchange for your rewards.

Simple as that. Like many things in travel rewards, since I’ve been doing this for 15 years, I took for granted that it was known and understood. With our newly doubled Flytrippers team, we’re going to be doing lots of new content for both basics like this as well as for advanced tips for pros!

So value is THE most important metric to know in the wonderful world of travel rewards. It really is the basis of it all.

 

Unit of measurement for rewards value

There obviously is a unit of measurement that exists to calculate and compare value.

 That’s because there are 2 distinct components involved in rewards value:

  • The amount of money saved
  • The amount of rewards used

Since the amount of money saved and the amount of rewards used varies with literally each rewards use, the value of rewards is always simple: how much each point saves you.

Like just about any unit of measurement that expresses a relationship between 2 things, the value is obviously always brought back per point. To make it simpler. No matter how long you drive for, your car speed is always measured in kilometers traveled per hour, not in kilometers traveled per 26 minutes (and not in 393 meters traveled per 26 minutes either).

So logically, no matter how many points you use, the unit of measurement for rewards value is always ¢/pt: cents per point. How many cents you save for each point you use.

(It’s so simple when you know it! It’s why we want to help you with all our upcoming content, honestly it’s really not that complicated if you take the time to learn! But you have to take the time, as with any subject!)

By the way, it’s always cents per point, even if the rewards currency isn’t called a point (it could be called miles, cash back, or something else). In the context of the unit of measurement of value, “point” is just the generic term for any rewards currency (because it’s by far the most common currency name).

 

How to calculate the rewards value

Just to be clear, some rewards are of the more simple type. They have a fixed value and you don’t need to do any calculations, ever. You can stick with those if you prefer, but those rewards are obviously worth a lot less: everything in life is either more simple or more lucrative.

But everyone should at least understand the basics of how to calculate the value of rewards. Especially since this too is very simple when you know it.

You now know that the unit of measurement for rewards value is ¢/pt.

So it’s very easy to do the math:

  • ¢: How many ¢ you save
  • /: Divided by
  • pt: Number of points used

I honestly thought it was clear to everyone, since we always use the ¢/pt unit of measurement, which clearly tells you how it’s calculated directly in the unit of measurement.

But mathematics and calculations aren’t the greatest passions for many people, and that’s quite normal. On the other hand, again: knowing how to do the math correctly is literally 1 of the 6 most important things in the world of travel rewards in our one-page infographic which sums up the basics, so you need to take the time, at least a little bit. We’ll help to make it easier for you.

To illustrate the simple ¢/pt calculation, I’m going to use a similar unit of measurement that you’re more familiar with than ¢/pt: km/h (kilometers per hour).

The unit of speed is km/h because it’s how many kilometers you travel per hour, obviously. If you cover 100 km in 1 hour, that’s a speed of 100 km/h. Why is that? Because you divide 100 by 1 and that’s 100. If you cover 50 kilometers in 25 minutes, that’s 120 km/h. It’s 50 divided by 0.41667 hours (25 minutes).

Simple. That’s the slash in km/hr, the universal symbol for division. Kilometers divided by hours.

So it’s the same with ¢/pt. Cents divided by points.

 

Particularities of rewards value calculations

The method for calculating the ¢/pt value of rewards is simple, but there are a few things you need to know. 

Here are the 3 particularities:

  • You have to adjust the value of what you get because it is in $ (not ¢)
  • You have to calculate the amount you’re saving (not the total cost)
  • You need to use the amount you would have actually paid (not just the amount)

 

Adjust from $ to ¢

The price of trips is always in $ and not ¢ (so is whatever else you get with your rewards… but it’s almost always better to use for trips if you want more value).

So you can simply use the $ for the calculation and then multiply the result you get by 100 (because there are 100¢ in $1).

For example, if you save $100 with 10,000 points: $100 divided by 10,000 pts = $0.01. Multiply that by 100 (or just move the decimal point by 2 spots to the right if you want to save time). That’s 1¢/pt in value for that particular rewards use.

 

Use the amount you save and not the total cost

Beware of a very common miscalculation. It’s very important to use the amount of money you save by using points, not the total cash cost of what you get with your points. It’s not the same at all.

The thing is that almost all the best reward uses (the ones that give you the most value) require you to pay flight taxes in cash. The exception is Marriott Bonvoy points, which are also among the best and give you completely free hotels, with no taxes to pay (apart from a few rare countries where taxes are very low, just a few dollars).

The value is how much you save! That’s all that matters, so obviously you have to use the amount you save for the calculation. The price of the flight… minus taxes. Because you don’t save the taxes.

For example, let’s say your flight costs 10,000 points and $50 in taxes and is worth $250. You save $200, not $250. Again, this isn’t complicated math, it never is. You just need to know how to count it properly, and anyone can do $250 minus $50. Otherwise, use Google to do the math, that’s even easier.

So to calculate the value of your points, you do $200 divided by 10,000, not $250 divided by 10,000. That gives you 2¢/pt in value. Because you save $200 with 10,000 points (you don’t save $250).

Know how to count! Another very good example of the importance of knowing how to do the math correctly is that all those who know nothing about rewards say that it's not as good to have to pay taxes... whereas the total value obtained (amount saved per point) is almost always BETTER with points that require paying taxes!
.

 

Use the amount you would have really paid

You must calculate what you would really have paid if you want to be honest with yourself about the value you get. There are 2 parts to this, a more basic one and a more advanced one that is optional.

The basic part is that if the specific flight you get with your points is worth $600, but there was another flight available at a different time or on a different airline that cost $400… did you really save $600?

You should probably use $400 for the value calculation, because in reality, that’s what you would have paid, not $600. You’re actually saving $400. Even if the flight you get is “worth” $600. It’s always fun to get an outsized value with your points, i.e. something that was worth $600. But you have to be rational.

The more advanced optional part is more at the philosophical level really, but I’m sharing it with you just to have a little more content for the pros that’s less for beginners today.

It’s related to luxury travel, which is the best use of points by far in terms of value (your points are worth twice as much, or even more). But did I really save $3856 on my flight in the world’s best business class this summer?

The flight I got was really worth $3856, yes. And it’s great to get something really expensive with very few points. But I’m not crazy, I’d obviously never pay $3856 for it (NEVER do that: using points is the only logical way to travel in luxury). So I did it to spoil myself, but to make the booking decision, I compared the points cost to what I would really have paid in cash for economy class — because I obviously would never have paid $3856 for it and so I didn’t really “save” $3856!

 

Variation in value with different reward currencies

There are lots of different rewards programs. There are dozens and dozens of them in Canada, and all over the world.

Each program has its own rewards currency, and they’re all different, of course: American Express points, Aeroplan points, Marriott Bonvoy points, WestJet dollars, AIR MILES Miles, TD cash back, etc.

Each rewards currency has a different value, logically: they’re all different rewards.

While many are called “points” they have a different value, “points” is just a random made-up term that doesn’t mean anything, like “dollars” for country currencies. If you think that because 2 points currencies share a random term it means that their value is the same, I’ve got plenty of Zimbabwe dollars to exchange for your Canadian dollars at a rate of 1 to 1 😉!

Anyway, it’s the same thing with rewards as it is with country currencies: 1 BMO Rewards point isn’t worth the same thing as 1 RBC Avion point at all (less than half, in fact). This is very basic as well.

Since credit cards are obviously by far the best way to earn lots of rewards, to be clear, the same bank can also have cards that earn different rewards currencies! These therefore have different values, because they are different reward currencies.

 

Value variation with different use options

It’s the concept of different values for different uses that many people seem to have trouble understanding. Yet it’s simple, so let’s take it one step at a time.

Almost all rewards programs offer several different use options. It’s logical, they want to give you different choices.

It’s also logical that the value of the points is DIFFERENT depending on the use option you’ve chosen.

For example, RBC Avion points are worth ≈ 61% less if you use them for a simple statement credit than if you use them for travel. Yes, 61% less! That’s a lot!

Often, the different use options offered by the programs are there to give you several terrible choices. And unfortunately, a lot of beginners fall for it.

 

Value variation with the same use option

This is where we usually lose all the beginners, but hang in there, it’s really not that complicated! And it’s thanks to this that you can get the best value… if saving as much as you can is something you’re interested in!

With some reward currencies (the ones that give you the most value), the value is different even for the same use option!

The basic thing to know is that there are 2 types of use options:

  • More simple type
  • More lucrative type (we used to call it more valuable, but it was less clear)

The more simple type of uses is less lucrative. More simple because the value is always linked to the price in cash (so always the same value, or close to it) and because there are fewer restrictions (if any). Less lucrative because you can never get a good deal or get a higher value.

The more lucrative type of uses is less simple. More lucrative because the value is NOT linked to the price in cash, so you can get a good deal and get a higher value. Less simple because the value varies (depending on the use) and because there are more restrictions (including major ones).

It’s important to understand this fundamental principle with the best reward currencies: the value depends on how you use them! It’s such a simple concept, but it confuses many.

With 70,000 Aeroplan points, you can save $1100… just like you can save $6000!

It varies! It’s that simple of a concept: it always varies. Just do the math.

Let’s go a bit further to understand this topic, since it’s the most important one for those who want to maximize the value they get.

You now know that value is how much you save with your rewards, the cents you save per point used.

So with currencies that have variable values depending on your uses, the value depends on what exactly? It depends, of course, on how much you save and how many points you use! The 2 variables in the rewards value!

The amount you save with a given number of points will change continuously with these point currencies, because the number of points required with this use option is NOT related to the cash price. A flight that costs 20,000 points can be worth $500, but it can also be worth $300. It varies.

The amount of points you use for a given redemption will change too, because flights worth $500 can cost 20,000 points, but they can also cost 30,000 points. It varies.

We’re preparing a ton of new content, with videos, to help you master and maximize these amazing rewards currencies!

Here are the best rewards currencies that can give you the highest value, and therefore have a variable value:

  • American Express points
  • RBC Avion points
  • Air Canada Aeroplan points
  • British Airways Avios points
  • Marriott Bonvoy points

 

Value of each type of reward

Our next travel rewards update will have a guide with the value of each rewards currency mapped out. We’ll have detailed guides for each rewards program too.

But in the meantime, the basics are in the tabs on our card resource page.

For example, with the record-high offer on the RBC Avion Visa Infinite Card, it tells you exactly how much each option to use the points is worth.

RBC Avion redemption options (image credit: Flytrippers)

 

Learning how to travel for less

Join over 100,000 savvy Canadian travelers who already receive Flytrippers’ free newsletter so we can help you travel for less — including thanks to the wonderful world of travel rewards!

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Summary

The value of rewards is the most basic of all the basics. It’s how much money you save by using your rewards. It’s always expressed in ¢/pt, which is simply the number of cents you save per point used. This value varies for each program, but also within the same program.

 

What would you like to know about the value of rewards? Tell us in the comments below.

 

See the flight deals we spot: Cheap flights

Discover free travel with rewards: Travel rewards

Explore awesome destinations: Travel inspiration

Learn pro tricks: Travel tips

 

Featured image: Kauai, Hawaii (photo credit: Karsten Winegeart)

 

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Andrew D'Amours

Andrew is the co-founder of Flytrippers. He is passionate about traveling the world but also, as a former management consultant, about the travel industry itself. He shares his experiences to help you save money on travel. As a very cost-conscious traveler, he loves finding deals and getting free travel thanks to travel rewards points... to help him visit every country in the world (current count: 71/193 Countries, 47/50 US States & 9/10 Canadian Provinces).

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