Paul's Comments

There is an advertisement on Dish Network in which they mention that if you're a subscriber, and you recommend the service to someone else who subscribes, you get $50 back (in the form of a credit of $5 a month for the next 10 months of your subscription, presumably as long as the person you make the recommendation to is still a subscriber.) There is no problem here, it's a great idea. In fact, it compares favorably to Dish's coupon program where people pay them to purchase a reseller kit and for each customer Dish Network gets, the reseller is paid $50 cash, probably one month after installation.

What's really stupid is, that Dish Network is setting a limit on the number of subscriber referrals to a maximum of 5 a year (or $250 credit), in short, they've capped the credits with a limit of $25 in a month.

Think about this for a moment; Subscribers that Dish Network have to pay for referrals cost them real money, up front, while subscribers they get by referral not only cost them nothing (a reduction in payment doesn't cost you anything; it's slightly less profit on that customer), the rebate is paid out to the referring customer over a 10-month period. A $5 rebate paid out over ten months from now is not only not real money you have to cough up, it's worth less than $5 because of the time value of money.

If someone owed you $50, would you prefer $50 now, or $51 in two years? Obviously, $50 now is worth a whole lot more than $51 in two years, even if inflation is zero (and it never is). Now, the only time you're willing to wait is if the payment made later makes up for the time value of not getting your money. That's why, if you borrow money, either by financing a car or paying on a mortgage/trust deed, you pay by the "rule of 78." You divide the year into 78 periods, and you pay 12/78 the first month, 11/78 the second, and so on. Interest is front loaded, so as you hold onto the loan long term, you pay more in interest. If you look at the price of a house, for example, generally on a 30 year loan, during the first 15 or so years, 90% of the payment you make amounts to interest. (This is why if you make one extra payment a year you can pay off a 30-year mortgage in 15 years.)

The capital, or acquisition cost, to get the customer, is still a wash; the customers who are referred by a reseller are installed at either free or a reduced cost same as the customers who are referred to by existing customers.

Something tells me the people who are running this program are not thinking. If anything, I'd want to encourage even more rebate customers getting a small discount over paying redistributors. Of course, it could be they want to look like they are making more money because a rebate to a customer is a reduction in income, while a payment to a reseller is an expense. The difference being the money you spend on resellers comes out of income and allows you to claim a higher income, while the money you credit as a rebate is a reduction in income you don't book. If you don't get $500 because a customer has referred 10 customers, it's the same as if it costs you $500 to pay for 10 customers.

But it still seems to me that cash money you don't receive, and structure the reduction over a long period is worth more than cash you have to pay out directly, immediately.

I mean, I'd be delighted to have someone that so sold his friends and neighbors that I ended up giving him a free subscription, because the loss of, say, his $70 monthly fee in terms of having encouraged 14 people to subscribe, turns into a minimum of $420 in payments (based on the minimum $30 subscription). If he encourages enough people to subscribe that it exceeds his fee, carry it over to following months. This sort of promotion is a whole lot cheaper than actually paying cash bounties to resellers.

But then, what do I know? I don't run a satellite company and I neither make recommendations to friends nor do I get bonuses for offering coupons to encourage people to subscribe. But it still sounds like they're stupid.