MS Metrics

bg85

Level 2 Member
I was thinking about this (sometimes I daydream) recently but it seems like there are a few different ways to measure manufactured spending (MS) and in turn determine if an opportunity is worth it or not.

1) The main one seems to be cents per mile (CPM) which means the goal is to get a steep discount but you're probably still paying a little in exchange for miles.

2) A few people seem to treat MS as a side business and think in terms of buying inventory and then selling it at a profit. I suppose miles could still be the goal but these folks are also trying to not lose money. Perhaps CPM matters less?

3) A third option is looking at MS as an investment. If someone invests X dollars into a deal then what is the return on that investment? Maybe someone who takes this approach would set a cutoff and only take deals that have a good chance of returning above a certain %. I would think miles would matter less as the goal is to maximize return.

The reason I bring all of this up is because I've recently started tracking my MS as an investment (option 3). I'm not interested in miles/points right now since I already have a lot built up. Instead I'm treating MS as a money making opportunity. I'm currently at 12% for the year which provides motivation to continue working at this (I'd take 12% in my other investments anyday). Also I think this provides a good measure of how well or how poorly I'm doing.

Maybe this is all basic to you but I think the way we approach MS will impact the choices we make. Thoughts? What metric do you measure MS with?
 

ed1chandler

Level 2 Member
The reason I bring all of this up is because I've recently started tracking my MS as an investment (option 3).
Now where did you get a crazy idea like that? ;-)

A couple of points:

First, you say you're only tracking MS for cash, but even if you *did* track points as an investment you could calculate the same sorts of things. If you want to take the time, it's probably best to treat points/miles as a currency. Most software will have a feature for that sort of thing. Thus you might "buy" 2,525 UR points for $4.95. Then you might "sell" them back to Chase in order to "buy" United Miles. Then you would ultimately "sell" those united miles to United in exchange for a ticket, etc. It's very do-able, but a lot of work.

Second, be sure you're calculating your rate of return with respect to time, but doing so realistically.
 

bg85

Level 2 Member
ed1chandler,

Good points. You could do the same with points but that would only work if you were planning to buy the same ticket anyway. Otherwise it would be the same as buying something and getting a rebate in the form of a gift card. It still has value but its not cash. Maybe in terms of a plane ticket or vacation it could be viewed as a bonus for your spending rather than a return.

Incidentally, another reason I've shifted away from points/miles is that I'd never pay for a first class plane ticket or a fancy 5-star hotel room yet that is where the most value is at in terms of CPM. If its not something I'd pay for anyway it doesn't make sense to earn it via points in my mind. Instead I'm attempting to maximize cash back and keep my spending habits the same. But thats just me. And thats just at this point in life.
 

ed1chandler

Level 2 Member
Agree 100%, I'd never pay for it out of pocket either, but that doesn't mean that you can't calculate "return" based on its value *to you*.

e.g.
  1. I buy a $500 VR from the mythical gas station that sells them for $504.95, netting 2,525 UR on my Freedom w/ 5x this quarter
    Enter this as "buy" 2,505 units of "UR" at a total cost of $4.95 and it'll calculate your per-unit cost at $.00196.
  2. Do that 9 more times ...
    So you now hold 25,050 units of "UR" with an average cost of $.00196.
  3. You want to fly cross-country on United and you find a ticket that costs $400 retail, and you'd ordinarily be willing to pay that so you can use $400 as the value of that ticket for redemption purposes.
    When you look it up, the award ticket costs you 25,000 United miles and $25 in fees. So, for this redemption, your 25,000 United miles would be "worth" $375 (because you pay the other $25 in fees out of pocket).
  4. Except you don't have United miles in your "account" - you have UR - and there's no way to "convert" one currency into another in most software without a sell followed by a buy, so you have to create a wash sale. So do this ...
  5. "Sell" 25,000 units of UR (to Chase, presumably, but you can enter whatever you like) at whatever price per unit you like (because it's going to be a wash in the end). I'll use a price of $.01 each, since you can actually turn them in to Chase for that. So that gives us a total of $250 after the "sale."
  6. You then use those proceeds to "buy" 25,000 United miles for that same $250. (Remember, this sale is a wash -- we just needed a way to "convert" UR to United miles.)
  7. Finally, you "sell" those 25,000 United miles back to United for the ticket ... which, as you recall, has a value (to you) of $375.
Result:
  • You "bought" those 25,000 UR for $.00196 each.
  • You "traded" them for United miles by creating a wash sale. (Remember, this sale is only there for purposes of the conversion in software that doesn't allow a direct "trade" of assets without selling first and then buying.)
  • You then "sold" your 25,000 United miles for the ticket -- an asset worth $375. Which means you redeemed them for $.015 each.
  • ... so you ought to "realize" a return of about 700% on that purchase.
The only difference when redeeming for premium cabins is that you have to be sure you value the ticket at what you would actually pay for it, less fees, not just its retail value minus fees.
 

smittytabb

Moderator
Staff member
Nice post. Gas station VRs are 503.95 last I checked though:) So that means they must really be mythical in your neck of the woods.
 

Josh F

Level 2 Member
Charity Forum Mod
Nice post. Gas station VRs are 503.95 last I checked though:) So that means they must really be mythical in your neck of the woods.
OV I'm guessing? I can't find any more Gas Stations that sell VR with CC, although I came soooooo close a few days ago...
 

smittytabb

Moderator
Staff member
OV I'm guessing? I can't find any more Gas Stations that sell VR with CC, although I came soooooo close a few days ago...
No, it was a genuine VR bought at a gas station with CC. Got 4 this week at two different locations. Partying like it was May 2014.
 

dzcinci

Level 2 Member
I like the concept of ROR to determine if the 'investment' is worth the effort. I also think that the 'value' of your personal time needs to be a significant factor. I tried to capture some of my thoughts in a different post.

http://saverocity.com/forum/threads/does-per-hour-savings-earnings-influence-your-decisions.946/

Probably the best metric somehow incorporates: profit margin; rate of return; value of your time; risk (of loss or holds on your capital); scale. For many of our systems, the opportunity cost of capital does not come into play as the circle is completed entirely without any physical outlay. For some systems (reselling) where the circle may extend out beyond the payment period of the credit card, then this needs to become a factor.

Maybe this depends on what is each individual's constraint; and what they choose to maximize. So a person with a lot of time but limited credit limit may find their constraint is their credit amount, this leads to an optimized system of generating maximum profit per unit of credit. The other person who has unlimited credit access, but a limit of 1 hour per week to allocate to the hobby will likely find a different optimum for their 'system' as they likely want to maximize profit per unit of time/effort. Other thoughts?
 

ed1chandler

Level 2 Member
Yep, just add the value of your time to your cost.

Someone else mentioned having to keep track of liquidation costs. Yep, you can either log that as the transaction cost for the purchase, or add it into the cost itself.
 

ed1chandler

Level 2 Member
Yep, if I didn't find this "fun" I'd probably be paying myself less than minimum wage.
(Logic fail: I am paying myself less than minimum wage, but that's okay because I find this "fun.")
 
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