If you are a savvy points traveler, its not enough for you to just cash in your points for anything. And many programs have sliding scales that make calculating true redemption value a bit fuzzy.
In this post I am going to demonstrate the simple math to calculate redemption value. This simple formula works for any point system (hotel, airline, credit card). For simplicity we will always convert points to cents value (or partial cents)
After a few calculations, we can have a target redemption value ready to know if this is the right opportunity to use our points.
Lets start with a hypothetical stay at a Marriott chain hotel in NYC in December. First we have points value, then actual cost if not using points.
Now we apply the simple math:
Cash cost ($550.57 * 100) = 55,057. Points Redemption cost is 35,000 points
55,057 / 35,000 = 1.57c per point. That is a pretty good value.
Lets do one more for comparison, this time a different Marriott hotel in Florida in September:
Cash cost ($133.28 * 100) = 13328. Points Redemption cost is 25,000 points
13328 / 25000 = .53c per point. That is a terrible value! Your points are worth 3 times more in the first example. If it were me, I would just pay cash for the inexpensive room and save my points for the NYC trip!
After doing this a few times you will know what value to look for. For me, I know I want at least 1.5c return on my Marriott points, otherwise I will just pay the cash price.
This formula works great for airline redemption values as well. If someone redeems airline points for cheap domestic flights instead of international business class they will not be getting the best value.