Miles Aren't Free: How To Value What You Earn

I like your writing Travis! Great analysis!

"If you redeem 100,000 miles for a $4,000 international business class ticket, you would have gotten 4 CPM"

Not really. You touched on that in your previous post, but here it is: I am never going to pay $4,000 for a ticket. If I have to pay cash, I would buy a $1,000 economy ticket instead. I would maybe pay $500 max for an upgrade to business class. I know nobody is selling upgrades for so low, but the fact is I would never pay more. So for me, the value of 100,000 miles international business class ticket is really $1,500, at most. That is 1.5 CPM. Again, this is my personal valuation, and it will be different for others, especially those who are, in real life, willing to pay more of their own cash (not employer's) for business class tickets.

Now, for the cost of obtaining miles, I get most of my miles via credit card signup bonuses. Those are truly free to obtain. However, it does not mean the miles are free. There is an opportunity cost. I got 25,000 free Amex MR points on credit card signup, but I could use those 25,000 points to offset $250 of my Amex bill ("tripflex pay with points"). So the miles really cost me a minimum of 1.0 CPM, they are not free.

Excellent post as always and agreed with your take that that pts earned from normal credit card spend comes at (an opportunity) cost of 2c per pt. However, you note above "I’m ignoring the sign-up bonus which is often huge and can easily make mileage credit cards more lucrative." Wouldn't you agree that the sign-up bonus is the single biggest aspect of point-earning that you would be ignoring?

I can't recall the specific post, but I believe you had mentioned that you typically sign up for 2-3 credit cards per month. With typical minimum spends >$3,000 each, it would always be a constant monthly cycle of hitting minimum spends on new cards instead of putting spend on existing cards.

That said, I wouldn't agree that I am paying 2c per pt since I am constantly hitting minimum spends on new cards. I would argue that most of the time, I am paying $0.001 per pt (e.g. earn 53k AA miles after $3k spend on new citi aa signup, opportunity cost @ 2% = $60. 53k / $60 = $0.001). I would suspect there are more readers out there that fit our shoes than that of conservative Joe putting all spend on his citi double cash back card.

Nice post.

Echino, you're confusing cost and value. The "cost" is actually something like $60, assuming a $3K minimum spending requirement for the miles and that you have a 2% cash back card. You do have one of those, right? Just because one low-level use results in a $250 value (one cent) doesn't somehow magically add an additional, or any, "cost" to a higher-value use, such as an airfare redemption (maybe two cents?).

Echino -- wasn't really saying that it's the retail price that determines CPM. If you read the previous post, I go into detail about that topic, and how it only matters what you would pay for it. I'm with you -- I won't buy business class (unless it's a mistake), so those lofty CPM's are just eye candy to me. Sounds like you have a really good handle on what a mile is worth to you, which is great.

Thanks Marc. Glad you enjoyed it.

Miles ARE almost free if you get them via credit card signup bonuses, by far the most lucrative method but not mentioned in this post. For example, 50,000 AAdvantage miles for getting a Citi credit card and spending $3000 and then canceling; it doesn't get much better than that. And you don't necessarily have to wait 18 months between applications.

Earning miles by buying stuff, or flying...how retro.

@TheRewardBoss has it exactly right, unless you can go big on MS (say $10-20k per month), the average person is better off just signing up for 3-4 cards every quarter and perpetually be spending to meet sign up bonuses. If you spend more than that, spend as much as you can in bonus categories and put the rest of the spending towards the signup bonuses.

I use CPM just to determine how good of a redemption it is knowing that if I get a bad CPM, I could have used the miles on a better redemption. CPM on redemption has almost nothing to do with my cost of earning miles.

I like the economics analysis, but the whole concept of value to each individual kind of messes up the objectivity of the valuation. @echino, there is a market value that is clearly established for these flights and what you would pay for them is only relevant to that value to the extent that you control that market price (which is effectively nil). I will repeat an analogy that has been written elsewhere. If somebody is going to give you a $100k Mercedes, but you would never buy a $100k Mercedes, you would only buy a $2K used Chevy, it doesn't make the $100K Mercedes worth $2K. The value of the Mercedes (or the business or first class ticket) has already been established by the market. Being objective, in economics, that is the only value that can be used. Only you can decide whether 100,000 miles is a good price for a business class ticket or 50,000 is a better price for an economy ticket, but once you buy it, the market value you got for your redemption is the same for everybody.

Unless you're freelancing or retired, mileage run miles will be the most expensive one. The calculation failed to account for the opportunity cost of time spent (hundreds of dollars in salary lost per day, inconvenience for other family members...)

That is the reason most people don't do mileage runs even if they know how to.

@TRAVIS - good article. I think it would have been great it would have paraphrased that if one would 'liked to travel as IF they were spending 4,000$, then the CPM value really stands out"..
Most ordinary folks would not spend $4k on a ticket, but can be convinced to have the mind set to use miles where it is most valuable, which is what Ben has been trying to drive the point home.
At the end of the day, there will always be people who will be delighted to continuously redeem miles for $500 tickets because that's value for them, while there is that 1% like Ben who love to live in the clouds literally, and show people the way, if they choose too.. nothing wrong in either option, just personal comfort zones.
On a personal note, I used to be that person who used to redeem miles for 500$ tickets, till 2014. I now look to see how I can ENJOY travel with the best utilization of miles using all the strategies that are being presented to me.

So thank you Travis , Ben , Tiffany for showing the way !

Andrew F

Andrew -- I'm glad you got something out of it. Thanks for the feedback!

I've made plenty of 25,000 mile redemptions that offset $500 of real money that was about to come out of my pocket. Nothing wrong with that either.

I still think some of you are still missing the point. If you live on sign up bonuses, and meet the min. spend (let's say an average of 2k/month), you are GIVING UP the chance to earn $40. So, it's free in that it didn't cost you anything out of pocket, but you gave up the possibility of making cash for exactly the same amount of effort. That's a cost, in my book. (I still do it, but I'm measuring what I do with my miles against that .02 standard at every step.)

I don't think they disagree with you mbh, it's just that the ¢pm for signup bonuses is SO lucrative that it's just implied. Take Chuck's example, 53k AA miles for $3000 in spend means I've foregone $60 cashback to earn those miles. At an acquisition cost of only 0.1 ¢pm, it's barely worth mentioning.

If you play this game correctly, you're either always earning a signup bonus, a category bonus, or an annual bonus.

BEAUTIFULLY written and a much needed article! Most folks talk about “traveling for free” but this is not the truth. I need to share this with others that I have been trying to educate on how to travel for less. Plus, it provides some ammo against those who prefer the cash-back cards. If people put the math to it, you make more money with the airline miles than the cash-backs depending on how you use it. Education is the key – thanks once again!

Dee - i am not sure where you got "it provides some ammo against those who prefer the cash-back cards" from in the post. if anything, there is encouragement to use a 2% cash back card.

@Echino - It shouldn't really matter what you're willing to pay for something to determine the CPP. If I offer you enough cash back at 2% to get a Chevy Malibu or enough miles to get a Porsche are you going to tell me the value of the Porsche is whatever you would have spent on the Chevy, since you would have never actually spent the money on the Porsche? No, of course not. You'd take the Porsche and say "That's amazing I could have had a Malibu, but instead I got this awesome Porsche that I would have never been able/willing to pay for.

Very interesting, thank you!

I have a question: I'm considering to redeem 50.000 Flying Blue miles for an economy flight Rome to Cancun. The flight ticket in economy is 680 €. Using miles it costs 50.000 miles + 225 € for airport and security taxes.

In my opinion, I should deduct the taxes amount from the sum to have a correct idea of the CPM:

50.000 miles = 680 € - 225 € = 455 € CPM = 455 € / 50.000 miles = 0.0091 CPM

Am I correct?

@Mauro

Ciao, va bene?

Yes, you are "almost" correct. But you now could add how much miles you earn with the ticket you buy, doing this equation:

50.000 miles = 680 € – 225 € – (miles earned with paid ticket) = ??? € CPM

But if miles are about to expire, and you have no option to renew the expiration date (I don't know the policy of Flying Blue), just burn the miles!

Enore