Last Updated: 20-April-2016
Wireless Zone Launches Innovative New Royalty Fee Model
Since Wireless Zone’s founding in 1988 as “The Car Phone Store,” the franchise has operated on a gross revenue system. This model created revenue in two distinct ways: through product purchasing at wholesale, which was then marked up to sell to franchise locations, and from individual phone activations. Every time a customer was activated on the Verizon network through a Wireless Zone location, the brand was paid a commission. Wireless Zone then took a share of the royalty rate, and the remainder of the money was given to the franchisee. It was a lucrative system for the company, but the net profit wasn’t quite as favorable for the franchisees.
When Joe Johnson was named Wireless Zone’s president and chief operations officer in late 2014, he eyed the industry’s increasingly competitive and unpredictable fluctuations, and decided to take a radical path toward reinventing the brand’s 27-year-old system for generating revenue.
“For a while, we made money by buying at wholesale costs, then selling it back to franchisees at a cost that could help us make money. This worked well for a long time. But, when Verizon introduced a new element to their plan that allowed phone users to lease their devices rather than purchasing them, we saw an immediate shift. What had once worked very well for both sides suddenly wasn’t as advantageous to our franchisees. I didn’t like the idea that Wireless Zone was suddenly torn between providing the absolute lowest cost to our franchisees and running a profitable business. So, we immediately set out to create our own model that the franchisee and corporate team could both benefit from together,” Johnson said.
Talks began in 2015 between Wireless Zone executives and key franchise advisory council members like Debbie Peterson, a Wireless Zone owner in Michigan and Michael Sabbatini, a Wireless Zone owner in Pennsylvania. As the group spoke with Johnson about the brand’s royalty structure, both sides arrived at the conclusion that the system the brand had successfully operated under for more than two decades was in desperate need of change. Intrigued by the candid reactions from those like Peterson and Sabbatini, Johnson asked the group to work with him to rebuild the royalty model into a system that would mutually benefit the both the franchisee and the franchisor.
“I asked the franchisees to start from scratch, so we could align our interests in the best, and fairest possible way,” Johnson said. “We quickly arrived at a simple solution to share our gross profits. Under our new model, we take a store’s revenue and subtract the cost of goods, leaving gross profits as the remainder. Wireless Zone will now take a royalty fee off of that number, rather than specific activations or product mark-ups. Under this new model, the franchisees and franchisor work together for the greater good of the business, and Wireless Zone is directly invested in the success of its franchisees. We are heavily focused on making as many positive impacts as we can at the store level.”
“We worked together to come up with the best model we could that would hopefully work for everybody,” said Sabbatini. “I think this is the right model for our future. Under this model, Wireless Zone doesn't make money if its franchisees don’t make money, so we’re in it together to drive future success."
Officially launched in January 2016, Johnson believes the new gross profit royalty model holds huge potential for both Wireless Zone and its franchisees. Nearly 50 percent of existing Wireless Zone stores had voluntarily enacted the gross profit royalty model by March, and any new store openings moving forward will automatically adopt the new system. To date, stores that have introduced the new model are already outperforming those on the legacy model by more than eight percent. In addition, sales among stores with the new royalty model are up by more than 16 percent so far in March versus those remaining on the legacy model.
“With this new royalty model in place, the franchisees and franchisors are all in the same boat, paddling in the same direction,” said Peterson, who helped design the new model. “It’s helped to align the stores with the corporate team, and I think we’re going to see organic growth at the store level because of it. This decision to shift toward a gross profit structure shows Wireless Zone standing behind its franchisees and ensuring their success. That’s a business you want to be a part of.”Franchise: Go to Wireless Zone page