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1851 Growth Club
Wireless Zone Launches Innovative Royalty Fee Model
Wireless Zone's gross-profit model is designed to better align with franchisees and drive improved store-level economics.
Wireless Zone, the nation’s largest wireless retail franchise, offering exclusive Verizon products and services, is poised to shake up the industry in 2016 through a pioneering new franchise royalty model. The introduction of the new gross profit royalty model, a unique system designed to drive store-level profit and strengthen the franchisor-franchisee relationship, serves as a monumental step forward for the brand’s strong, growing network of locations nationwide.
Since Wireless Zone’s founding in 1988, the franchise operated on a model based on collecting royalty on owner’s commissions. 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 commission as royalty, and the remainder of the commission was passed through to the franchisee. It was a lucrative system for the organization for years, but as the industry changed, new challenges were presented.
When Joe Johnson was named Wireless Zone’s President 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 royalty.
“We operated on the model that collected royalty on commissions and profit from product mark-up, which worked well for a long time. But, when Verizon introduced a new element to their plan that allowed phone users to finance their devices rather than subsidize them, we saw that there would be fundamental changes to the industry that we would need to adjust to. What had once worked very well for our system was getting shaken up. Furthermore, I never liked the idea that Wireless Zone was torn between providing the absolute lowest cost to our franchisees and managing an established profit center. So, we set out to create our own model that the franchisee and franchisor could both benefit from, regardless of what happened in the industry,” Johnson said.
Talks began in 2015 between Wireless Zone executives and key franchise advisory council members including Debbie Peterson, a Wireless Zone owner in Michigan, and Mike 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 one that would mutually benefit 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 simply take a store’s revenue and subtract the cost of goods, leaving gross profits as the remainder. Wireless Zone will now take a royalty off of that number, rather than activation commissions 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 tremendous potential for both Wireless Zone and its franchisees. Nearly 60% percent of its existing stores have voluntarily enacted the gross profit royalty model, and all new stores that open will be on the new model. To date, stores that have introduced the new model are already outperforming those on the legacy model by more than ten percent.
“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.”
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