Hi guys,
Just a thought that came to my mind, but with some of the contracts out there, it seems like they’re bound to make a loss. In this example, I’ll go with a Google Pixel 7. A 128GB of that would cost £599. With the airtime with it, let’s go with a guess of £10 a month, thus £240 for a 2 year contract. So in total, that’s £839.
Here’s the kicker, the contract is priced at £25 for 24 months. Even accounting for let’s say a 13.9% hike each February that would add up to £679. So… I can’t quite wrap my head around where they are making the money!
In: 1
You’re right sometimes the carrier takes a loss if they sell it at a subsidized price to users.
However, the carriers make their profit from the contracts and services it sells along with the phone. That’s why iPhones sold through carriers are usually locked to that carrier unless certain financial obligations are met (contract term, full device payment, etc).
A couple of reasons. More people will sign on to the contract, meaning that (pulled numbers from my butt) for every 4 or 5 people might buy a phone outright, 8 or 10 people will sign up for a contract. In two years, the phone company earns more revenue from contracts.
Second, in both cases the device is marked up substantially, likely 5 or more times than its lowest market price. This is where companies really make their money.
So while person who signs up for the contract feels good about saving money, after 2 years the company walks away with 5 or more times as much money as it cost them to provode the phonr and service.
You’re right, at first glance it does seem like these phone companies are handing us a golden goose and getting chicken feed in return. But don’t worry, they’re not running a charity here.
Here’s the thing, a big chunk of their profit doesn’t just come from the contract itself. Instead, they’re banking on the long-term relationship with you. It’s kinda similar to [games that pay money](https://joywallet.com/article/games-that-pay-real-money/) – the idea is to keep you coming back for more.
Think about it. You’re not just paying for the phone or the airtime. You’re getting roped into a bundle of services, like data, voice mail, insurance, and a bunch of other add-ons, all at an extra cost. These services are where they make a significant amount of money. The upfront cost of the phone is just to get you in the door.
They sell thousands, maybe millions of phones, and each one of those contracts adds up. Plus, when your two years are up, you’ll probably want the latest model, and guess who you’re going to go to for that?
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