2 ways of calculating ROI on spend - which one is better?

[niket]

Spends: 72000
Renewal fee: 1770
Assumed value of reward points: 7440

Approach 1
ROI = 7440/(72000+1770)*100 = 10.09%
Here you are considering your renewal fee as an expense also

Approach 2
ROI = (7440-1770)/72000*100 = 7.88%
Here you are subtracting the renewal fee from the value of rewards and calculating the actual reward on spend of 72k

Is approach 2 a more realistic representation of ROI?

 

[Shubham Yadav]

Approach 1 is not valid and not fit logically because after spending threshold amount sometime you get full fee waiver and sometime u get half like AmEx even some people get LTF card. Card fee cannot be added as expense because its not necessary's that it will be charged annually.

Approach 2 is realistic and more applicable because in this scenario its is based upon a actual charged fee.

 

[Shubham Yadav]

Or haan ek or baat



bore ho rahe the kya aaj

 

[Martius]

Spends: 72000
Renewal fee: 1770
Assumed value of reward points: 7440

Approach 1
ROI = 7440/(72000+1770)*100 = 10.09%
Here you are considering your renewal fee as an expense also

Approach 2
ROI = (7440-1770)/72000*100 = 7.88%
Here you are subtracting the renewal fee from the value of rewards and calculating the actual reward on spend of 72k

Is approach 2 a more realistic representation of ROI?

Not sure how you assumed the value of reward points to be 7440.

Since you’re taking Annual Fee as 1499+GST I assume you’re talking about MRCC card with Referral benefits!

2000 MR you’ll get as joining bonus

Since you mentioned a spend of 72000 based on that I assume you’re planning to spend 1500*4=6k a month! That would give you 1000 MR as monthly target spend bonus plus 120 MR as regular MR based on 1 MR for each transaction worth 50. Total monthly MR would be 1120 for a spend of 6000.

At the year end you’ll have 15440 MR in total.

Now if you plan on redeeming it for 18K you’ll still have to wait another 3 months before you can redeem those 15440 points for an Amazon, Flipkart, Myntra, Shopper stop or Taj Voucher.

Otherwise for statement cashback you’ll only get 0.25 value for 1 MR that gives a return of 3860.

For buying Insta vouchers thorough RP I’ve seen amazon gift card of 1000 will require 4400 MR which is like a return of 0.22 for 1 MR. One would rather use it for cashback!!

So that calculation is not correct as far as i can see!! Correct me if I’m wrong!

 

[raghu.rokda]

Spends: 72000
Renewal fee: 1770
Assumed value of reward points: 7440

Approach 1
ROI = 7440/(72000+1770)*100 = 10.09%
Here you are considering your renewal fee as an expense also

Approach 2
ROI = (7440-1770)/72000*100 = 7.88%
Here you are subtracting the renewal fee from the value of rewards and calculating the actual reward on spend of 72k

Is approach 2 a more realistic representation of ROI?

आपकी गड़ित बहुत अच्छी है

 

[niket]

Not sure how you assumed the value of reward points to be 7440.

Since you’re taking Annual Fee as 1499+GST I assume you’re talking about MRCC card with Referral benefits!

2000 MR you’ll get as joining bonus

Since you mentioned a spend of 72000 based on that I assume you’re planning to spend 1500*4=6k a month! That would give you 1000 MR as monthly target spend bonus plus 120 MR as regular MR based on 1 MR for each transaction worth 50. Total monthly MR would be 1120 for a spend of 6000.

At the year end you’ll have 15440 MR in total.

Now if you plan on redeeming it for 18K you’ll still have to wait another 3 months before you can redeem those 15440 points for an Amazon, Flipkart, Myntra, Shopper stop or Taj Voucher.

Otherwise for statement cashback you’ll only get 0.25 value for 1 MR that gives a return of 3860.

For buying Insta vouchers thorough RP I’ve seen amazon gift card of 1000 will require 4400 MR which is like a return of 0.22 for 1 MR. One would rather use it for cashback!!

So that calculation is not correct as far as i can see!! Correct me if I’m wrong!

The point is not abut how I calculated the value of rewards but it's about how to calculate the ROI after that 😅

But since you asked, here are the details:
Yes, I'm talking about MRCC card. And I'm calculating ROI after year 2 - so no joining bonus. And I'm not relying on any fee waive-off / retention bonus.
1k milestone bonus every month for 1k x 6 + 2x reward points for spending via gytr.
Total rewards in a year would be 14880 and valued at 50p/point assuming redemption at Marriott. Marriott can give a much higher value per point as well depending on property and season but I have assumed 50p/point for now.

 

[hs23]

I would like to hear more POV on this.

 

[helloworld]

Spends: 72000
Renewal fee: 1770
Assumed value of reward points: 7440

Approach 1
ROI = 7440/(72000+1770)*100 = 10.09%
Here you are considering your renewal fee as an expense also

Approach 2
ROI = (7440-1770)/72000*100 = 7.88%
Here you are subtracting the renewal fee from the value of rewards and calculating the actual reward on spend of 72k

Is approach 2 a more realistic representation of ROI?

Here is what I do,

Annual Rx % = =([@Cashback]+[@Discounts]-[@[Annual Fee.]])/([@Spent]+[@Discounts])

Cashback = Cashback we received in statement or some form like as Amzn voucher (over and above to compliment your purchase). Ex: monthly cashback or quarterly milestones.

Discounts (optional and can be clubbed with cashback) = Where we availed those 10% offers or easydiner benefits etc. (benefits for holding that card and using at those purchases). This some people included in cashback as per their convinience it helps which cards are better for sales and which are for general purpose. If you're considering this then have to add same with spend amount because without this your total bill amount will be increased.

Annual Fee = Fee that we paid after waiver or joining benefits (at any time, if I paid then it is an expense for me).

Spent = actual amount billed to the statement (available in statement)



Similar calculation can be applied to Lifetime Rx % = combination of multiple years of spends, fee and cashbacks.

In above image it is 2 years spends, and if you see first year I got negative returns with payment and even with joining benefits but after redeeming some points in 2nd year, I got some positive returns. This is old card helped me to analyze my spends and cancelled because not satisfied with its rewards at that time - and also it gave me '0' discounts in 2 years means never availed any offer, instant discounts etc. so its completely useless to me.

Few more points:

- Unless you received them in statement or redeemed as some voucher, never include them in your returns. When time comes, things may change and value may decrease.
- Always include annual fee in your calculation and with that you have to get positive return (same for any service).
- Like @Martius mentioned, if you can't redeem in 1st year then return for that year is still 0% or negative if joining fee paid but not availed any discounts/cashback to get that amount. 2nd year when you redeem actually then you have to include in your calculation.

Again, this is my process may vary and needs constant understanding of statement spends (not buy and forget).

Do let me know if you see any flaw in it..

 

[GShan]

Spends: 72000
Renewal fee: 1770
Assumed value of reward points: 7440

Approach 1
ROI = 7440/(72000+1770)*100 = 10.09%
Here you are considering your renewal fee as an expense also

Approach 2
ROI = (7440-1770)/72000*100 = 7.88%
Here you are subtracting the renewal fee from the value of rewards and calculating the actual reward on spend of 72k

Is approach 2 a more realistic representation of ROI?

If renewal fee provides points or other benefits that you are taking in numerator, then approach 1 is applicable. In case of no benefit from renewal fee, approach 2 is more appropriate. So, for Infinia approach 1 should be considered, but for MRCC approach 2. I hope it's clear.

And with this approach, spending 20k for 6 months, gives the reward rate of 7.77% i.e. (6*1000+12*1000+4% of (6*6000+6*20000))/156000 that is very close to 7.88% if you spend only 6k every month.