eli5 phone companies: How do they make money when you upgrade and trade-in your phone?

Question

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?

In: 3

Answer 1

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.