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FAQ: An Intro to Miles and Points

FAQ: Intro to Miles and Points

I have had a ton of questions on miles and points, since that’s a huge part of both our travel scheme and how we justify much of our expenditures.

Here’s the main principle to take home with you:

Miles and points are alternative currencies, just like cash.

You know when you get the credit card solicitation in the mail and it says “comes with enough miles for a free ticket”?  I want you to stop thinking of it as a “free” ticket, and start thinking of it as 25,000 points you can spend on something.

Here’s why.

Say you take that 25,000 points and you use it to book a ticket to Orlando, nine months from now, in the off season.  If you paid cash for that tickets, you might spend $300.  So… great!  You got $300 value for your 25,000 miles.

Now say that you use your 25,000 points and use it to book to a high demand, low lift destination like Jackson Hole in a month.  If you were to book that revenue, that is paying cash, you might pay $600.  In this case you got $600 of value for your 25,000 miles.  Clearly, you got better value out of your miles in this case than in the first case.

A metric we use a lot is the cost per mile, or CPM.  (In reward programs that use points instead of miles, the analog is cost per point, or CPP.)  Just like any currency exchange, there is a buying CPM (the rate at which you earn miles) and a selling CPM (the rate at which you spend miles).  If you calculated your CPM for the previous two examples, you would be looking at your selling CPM.  You take the money you would be spending (in this case $300) and divide by the points you are spending (25,000).  In the first case you are getting 1.2 CPM and in the second case you are getting twice that for 2.4 CPM.  When looking at your selling CPM, higher is better, because it means you are getting better value from your miles.

You can also look at your buying CPM, which is what we look at to determine how good of a deal a trip is.  The buying CPM has a good baseline, because most airlines will sell you their miles for some cash, and you can do a simple calculation to determine what their CPM is.  United, for example, will sell you 10,000 miles for 376.25, for a buying CPM of 3.8.  For the examples above, on a BOS-MCO round trip, you would be “buying” your miles along with the trip for 12.8 CPM.  And for a BOS-JAC round trip, you would get around 13.9 cpm.  If you earn any mileage bonuses due to fare classes, promotions, or elite status, this CPM will improve.  In buying CPM, lower is better.

Obviously, there are other issues at stake here – where you would like to go on the dates when you would like to go, what the award availability is like, etc.

The point here is that instead of treating miles and points as “free,” treating them like a cash equivalent can help you get the most bang for your buck out of both earning and using them.

You can also apply the same analysis to spending miles and points to purchase other items like hotel rooms, rental cars, and merchandise.  Look at the price you would have paid in cash for the item, divide by the number of miles.  Does this seem like a good value for your miles?

I haven’t written about miles and points yet on this blog because I’m not sure how much interest there is in this community.  If you would like to see more on the subject along with how we think about it as a family, drop me a comment here, on Facebook, or in email at amy@strollerpacking.com.

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