If I upgrade my phone and it costs $500 (billed spread over 3 years) and I trade-in my old phone and get $500 credit, spread over 3 years, how is the phone company making any money? What am I missing?
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They keep you locked into a contract with them for 3 more years making money from you using their services.
A guaranteed customer and subscription and thus income for 3 years is worth much more then a phone.
>If I upgrade my phone and it costs $500 (billed spread over 3 years) and I trade-in my old phone and get $500 credit, spread over 3 years, how is the phone company making any money? What am I missing?
It’s a double-win for the phone company. They get a commission from the phone’s manufacturer *and* they lock a customer into a contract for multiple years (which, as opposed to selling phones, **is** their business).
You’re stuck with them for another 3 years. That’s 3 years you aren’t with a competitor, and still making them a profit. The main profit isn’t in the phone, it’s in the service contract. Taking a small hit of a few hundred bucks over 3 years is nothing if you are paying $100+ a month for 3 years.
They sell the old phone, they are paying wholesale for the new phone. So their cost might be $300, not the $500 you are “charged.” And they sell your phone for $200, reducing the net trade-in cost. And now they have you locked into a 3-year contract with a high marginal product margin (once they have their cell towers and other infrastructure in place, it costs almost nothing to service a new customer or 1000 new customers).
All they really care about is locking you into a subscription long term. If they give you a 1000 dollar phone, and you commit to 2 or 3 years at 1200 or more a year… They are golden.
they want to keep you as a customer, so you’re more likely to give them money in the future. they’re playing the long game. phone trade-in means happy customer which means a continuing customer.
Either you have a new contract and are now stuck with the carrier or you are paying for that phone on an installment plan. And they have you hooked – you’re paying off that phone or you’re sent to collections and take a ding on your credit.
That trade in credit? That’s only good if you’re in “good standing” – making payments on time.
Miss payments and the bill will come due.
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