Apple's iPhone upgrade plan helps the company rake in more money per phone

Leasing the next-generation iPhone every year is a very competitive business, one that Apple is joining

Leasing the next-generation iPhone every year is a very competitive business, one that Apple is joining


During last week's new products announcement, Apple introduced a new plan that would allow someone to pay $32 a month for the Apple iPhone 6s, and exchange it for the newest version of the phone every 12 months. The key to the plan is that the customers signing up for it are leasing the iPhone, as opposed to making a downright purchase of the handset. This means that the phone has to be returned in good condition. 

Apple's plan is not the cheapest. Sprint has its iPhone Forever plan priced at $26 which also includes a 12-month update cycle. T-Mobile is allowing JUMP! on Demand subscribers to pay $0 down and $20 a month over 18 months for the Apple iPhone 6s, and $24 a month over 18 months for the Apple iPhone 6s Plus. Once the 18 months is up, T-Mobile subscribers can turn in their phones and walk away, or pay an additional sum to keep the phones. For the iPhone 6s, that figure is $164 which works out to a $524 total price for the new model. 

Amit Daryanani, an analyst with RBC Capital Markets, explains how Apple makes more money with the leasing option. Daryanani says that the typical iPhone is priced at $700 (and costs $350 to build). The first year of Apple's leasing program, Apple takes in $384 ($32 multiplied by 12). After the first year, the customer returns the phone for the next model. The first unit is refurbished by Apple and sold outright for $500. Thus, Apple takes in $884 in revenue over two years, on just one handset.

The leasing program also helps Apple with another metric that had started going against it. From 2013 to now, the upgrade cycle for the iPhone has been stretched out to 26 months from 22 months. But the leasing program offers an upgrade every 12 months, and while not everyone subscribed to the program will take advantage of it, there should be enough that do, allowing Apple to see the iPhone upgrade cycle drop substantially over the next 12 to 24 months. Daryanni, the RBC analyst, says "You essentially create a certain group of your user base that is going to be on a 12-month upgrade cycle."

Like a typical Wall Streeter, the analyst plugged the deal into some spreadsheets. His thoughts? "When I run the math, this is a very gross-margin-accretive investment for Apple."

Thanks for the tip!

source: Barron's

Related phones

iPhone 6s
  • Display 4.7" 750 x 1334 pixels
  • Camera 12 MP / 5 MP front
  • Processor Apple A9 APL0898, Dual-core, 1840 MHz
  • Storage 128 GB
  • Battery 1715 mAh(14h 3G talk time)
iPhone 6s Plus
  • Display 5.5" 1080 x 1920 pixels
  • Camera 12 MP / 5 MP front
  • Processor Apple A9, Dual-core, 1840 MHz
  • Storage 128 GB
  • Battery 2750 mAh(24h 3G talk time)

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31 Comments

1. jeroome86

Posts: 2314; Member since: Apr 12, 2012

No payment plans for me. Just buy it. If I upgrade next year, I'll just sell and buy new one. Last contract I did was HTC One X. No more.

5. Kishin

Posts: 706; Member since: May 30, 2013

Me too man its Sell it or trade it in, cause leasing means paying forever.

28. j2001m

Posts: 3061; Member since: Apr 28, 2014

As iPhones are very easy to damage this is a very bad idea

2. djkhalid

Posts: 156; Member since: Jul 01, 2013

so the tmobile one is the best, makes sense since t-mobile is the one who started it

4. TerryTerius unregistered

Well yes. But you cannot damage it in any way, that was my understanding talking to a T-Mobile rep when I paid my last bill. Not even light scratches.

6. TechieXP1969

Posts: 14967; Member since: Sep 25, 2013

But you still have insurance. JUMP ON DEMAND includes coverage. Someone Don damage it, you can replace it first which is easily likely $200.. So.yoir out of pocket could be over $700 which is what you could have paid in cash. But what how many fools fall for it

30. llk171

Posts: 95; Member since: Mar 31, 2013

Jump on demand does not include insurance. One the original jumps include insurance.

7. Derekjeter

Posts: 1455; Member since: Oct 27, 2011

All of the carriers will tell you the iphone must come back in new condition. At least with Apple leasing program you get Apple care in it. I applied for it on the day of pre-order and got my wifes rose gold and my gold 128 gig. Since i still have Verizon unlimited this will help me not pay $1800 at launch day like last year and since i get the new one every year this plan is the best for me.

9. fyahking

Posts: 1146; Member since: Jan 28, 2015

Dude, just buy the damn phone with cash and stop being cheap. Leasing are for the poor people on welfare and foodstamps. Iphone owners are people with lots of money according to the sheep. $1800 is chump change so just pay it off,man.:)

12. djkhalid

Posts: 156; Member since: Jul 01, 2013

lmfao

23. Finalflash

Posts: 4062; Member since: Jul 23, 2013

Lol well said.

31. llk171

Posts: 95; Member since: Mar 31, 2013

You mean versus the $679 for a galaxy s6, which cost more than an iPhone. Of course the same phone is now like $450, its real value.

3. arch_angel

Posts: 1651; Member since: Feb 20, 2015

That's why you just pay full price for your iphone and then resell It next year yourself you get most of your money back because iphone's basically keep there retail price as long as its in a flawless condition. That way Apple gets none of the resell money and you only have to pay a little extra for the new phone, Unless you switch to android in that case you could easily buy a full priced flagship for the price of your used flawless condition iphone. DON'T FALL FOR THESE DUMBASS PLANS.

8. Derekjeter

Posts: 1455; Member since: Oct 27, 2011

I used to think they were dumb ass plans but last year i spent a little over $1800 for two iPhone 6 plus, we still have them and will sell them for $500 each and instead of putting up another $800 for the two new ones i can keep the $1000 and just pay $70 a month. To me its a good deal, i will use the $1000 to pay off my Disneyland passes. Lol. I honestly don't want to waste my time in putting up on CL or Ebay every year and waiting for someone to contact me and running the risk of getting robbed or worse. My younger bro and hes wife are buying the current phones. Their happy and so are we.

13. arch_angel

Posts: 1651; Member since: Feb 20, 2015

70 a month for 12 months is $840 So you will be paying $40 than you would if you'd just pay the $800 for the new ones after selling your old ones for $1000. see with that plan you lose $40 LOL. BTW You can get more than $500 for the 128/64 gb iphone 6 plus even if its used as long as its in flawless condition that is.

24. Finalflash

Posts: 4062; Member since: Jul 23, 2013

No you don't just save $40 without the plan but more. Essentially you are renting the iPhones for about 32 per month x12 so about 400 per year. That being for the $650 iPhone means you literally save 250 when you get the next one. But if you buy one and sell it for 400 at least, you paid 250 to rent the phone and then saved 400. This plan makes Apple rich beyond words and only people lacking in math will get on it.

25. arch_angel

Posts: 1651; Member since: Feb 20, 2015

I was Replying to Derekjeter specifically and if you read what he said then what I said you will see that he does not save $40 by going with the plan to rent the devices by year instead of selling his devices and paying the difference for the new phone. He actually loses $40 by going with plan to rent his iPhones instead of paying full price. Anyone who already owns a iPhone would in fact lose money by switching to the new rent plan instead of reselling their old device and just paying the difference for the new iPhone. Because that difference they will have to pay for the new device will never be close to the $400 you will end up paying for the rent plan each year. The new plan only benefits people switching to an iPhone or people who have such a beat up iPhone that the resell value of it is under $350

26. arch_angel

Posts: 1651; Member since: Feb 20, 2015

EXTENSION TO MY POST #25 Add this to the bottom of the first paragraph, cause i realized i should add to it just in case didn't completely understand what i was saying. If Derek goes with the plan after selling his two 6 plus's for the sum of $1000 he states that he would have to add an extra $800 to get two new phones. And he'd rather pay $70 for twelve months instead of that difference Derek also say that he already signed up for the plan so that $70 a month must be the actual price given by apple for two 128gb iPhone 6s plus. $70x12=$840 that's $40 more than he would have ended up paying if he did not go with the plan and instead just paid the full price difference for new phones after reselling his old ones. And Just for the record he could get more than $1000 for two iPhone 6 plus and if he did then he would save even more by not going with the new rent plan for 12 months.

16. dimas

Posts: 3289; Member since: Jul 22, 2014

I'm not a fan of plans either. At first look you can say it's cheap coz it's an installment but if you add the months, you'll see that it is much cheaper to buy a unit on one drop. For people with tight budget, I think 2-4 years before replacing your phone is more practical. You get the latest tech offered without being frustrated of only getting small improvements every year. And inflation included, changing phone every 2-4 years means you're getting a cheaper, newer tech.

10. joey_sfb

Posts: 6794; Member since: Mar 29, 2012

I don't get it. Who is buying the older iPhone model for close to the retail price of the current model? Something just don't add up.

11. arch_angel

Posts: 1651; Member since: Feb 20, 2015

I know i could get $650 for a flawless iphone 6 64gb right now. People will buy it cause its basically new and cheaper than getting the new one or the old at full price.

15. dimas

Posts: 3289; Member since: Jul 22, 2014

You have no idea how many people would buy a refurbished apple just to own one. This is where the mentality of "it's an iphone so refurbished is cheaper than owning a brand new" comes and apple is aware that they can make money out of it. They've been doing that since iphone 4s so this news is not really new.

14. ibend

Posts: 6747; Member since: Sep 30, 2014

paying for a phone that u never really own, just like renting a new phone every year, and pay monthly for it

17. xfire99

Posts: 1205; Member since: Mar 14, 2012

What happens if after 12 months returning the iphone in bad condition then? How much would Apple/carriers charge for it?

20. korean411

Posts: 92; Member since: May 04, 2009

well you don't pay to the carriers you are paying apple. basically if it is in bad condition then you can't trade it in and just pay the rest of the installment plan.

18. Michael.Parker

Posts: 273; Member since: Aug 22, 2015

This better suits those who are too lazy/money wasting that they can't be bothered with the hassle of selling their phone when they're finished and just post it into one of those phone buying sites that give a quarter of what it's worth.

21. korean411

Posts: 92; Member since: May 04, 2009

to me i think it suits for the people who wants a new iphone every year.

19. robocopvn

Posts: 504; Member since: Mar 10, 2010

money sucker !

22. AlikMalix unregistered

This plan seems like a much better deal than NEXT/EDGE plan as it also includes AppleCare. I'm keeping my unlimited data, though... Curious if they can make my unlimited data plan and this work together somehow...

27. hortizano

Posts: 294; Member since: May 22, 2013

It's no surprise that Apple found a creative and innovative way to charge EVEN MORE to its loyal followers.

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