Math is hard… business math is harder

I did great in math. I honestly don’t remember much past algebra and geometry, but you could say I nailed it at the time. There is one type of math that I still can’t figure out though… business math.

This is the type of math that a business does before they make a sweeping decision, like to cut a product or change their prices. Maybe it doesn’t make much sense to me because you have to put common sense aside to get the formulas to work out.

The most recent example is with Sprint’s Family Pack. They advertise $100/month for 20GB of data for up to 10 lines. Pretty good deal really, except it’s only for new customers. Yep, existing customers get the “great” deal of $100/month for 20GB of data plus $15/month for each line that shares the data. I’ve also read that existing customers are limited to only 4 lines. So that’s $160/month for 20GB of data for up to 4 lines. Not such a good deal.

So, the brilliant MBAs that came up with this plan must not have heard the saying that it costs more to acquire a new customer than to keep an existing customer. Nope, they came up with this brilliant formula.

(Number of new customers we’ll get) + (Number of existing Sprint customers who won’t leave or can’t leave) – (Number of pissed off Sprint customers) > (Number of existing and new Customers)

That’s oversimplified of course, but you get the point. They assume that they’ll gain so many new customers that the number of customers who leave will not be enough to cancel out the droves of people that they are supposedly going to gain. They aren’t measuring the customers who will talk about how they’ve been burned, or the bad feelings that will keep them from coming back under any conditions in the future.

On the flip side, you’ve got T-Mobile, who gives their existing customers the same offers that they give to their new customers. Sprint’s tactic isn’t anything new. Cable companies have done it for years (and creating upset customers at the same time). The only difference with the cable companies is that they oftentimes don’t have as much competition, where cell phone companies are willing to pay you to terminate your contract early to come join them.

At this point, you’re probably expecting me to tell you how you can get $100/month if you’re an existing Sprint customer. Consider switching to T-Mobile, or you can try complaining, but they may not break in the same way the cable companies often do.

Have you been burned by business math? Were you able to “make the math add up”? Let me know in the comments below.

Photo by Behdad Esfahbod

One Comment Add yours

  1. I have the same feelings you have towards cell phone companies an cable companies. Both are terrible at keeping their current customers happy.

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