FDD Talk 2021: Wireless Zone Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Wireless Zone franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Wireless Zone franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Wireless Zone franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Wireless Zone outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Wireless Zone’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average and median number of postpay activations, upgrades, and transactions (postpay activations and upgrades combined) per store per month for the top 10%, bottom 10%, and all 399 franchised Wireless Zone stores that were open during the entire calendar year 2020

• 2020 average, high, and low gross revenue, gross profit, gross profit margin, and net activations and upgrades, by quintile, for the 373 franchised Wireless Zone stores operating under the new gross profit model for the entire calendar year 2020

Section I – Background Information

15 Things You Need to Know About the Wireless Zone Franchise

Cleveland Entrepreneur Acquires Wireless Zone Stores in Dayton Area

1.  In mid-February 2021, Cleveland entrepreneur Patrick Crise acquired multiple Wireless Zone stores in the Dayton, Ohio area, with plans to expand with new hires and additional locations. Crise, a telecommunications expert who resides in suburban Cleveland, purchased eight Wireless Zone locations. He bought the locations for $1.2 million from Conway Communications, which sold the stores to Crise as a portfolio.

2.  Four of these stores are in his native Cleveland, and four are located in the Dayton area. Crise acquired stores in Beavercreek, Englewood, Monroe, and Springfield, which will continue to be fully operational following the acquisition.

3.  Crise said his post-acquisition plans are to grow the businesses he has and to acquire additional locations. The eight Wireless Zone stores he owns collectively employ 30 people, and Crise said he is looking to hire another 10 employees. Crise said, “We are actively hiring for all locations currently.” In addition, Crise plans to purchase several more locations this year and next year. “We’re looking to essentially double or triple the number we have in totality.”

4.  Though much depends on market saturation and the number of locations for sale, Crise said the goal is to acquire more stores in both Dayton and Cleveland. He is also looking further south in the northern Cincinnati corridor and other areas of southwest Ohio. Crise said, “I’m specifically looking for opportunities in Dayton, so if something presents itself then that’s fantastic. If not, I’m also looking to expand in other areas of Ohio as well.”

5.  Crise also is in the process of launching an outside sales channel in Cleveland and Dayton. “That will launch organically in both markets, and will be for small business sales and that type of stuff,” he said. “Essentially we’ll pivot from our brick and mortar footprint, which is residential and consumer, to outside sales for small businesses.”

6.  Though he’s based in Cleveland, Crise said expanding to Dayton made sense because his wife’s family is from the area, in addition to the opportunities he saw in the local market. Crise added, “It worked out well since I have some family down there. Now I want to get ingrained in the community, and expand our local presence and footprint.”

Launches Device Buyout Program

7.  In early June 2021, Wireless Zone introduced its Device Buyout Program, which is a Wireless Zone exclusive. The brand is now randomly selecting customers (along with the employees who helped them) and paying off their phones. When customers shop at Wireless Zone stores and get signed up to receive SMS text messages for the first time, they get entered into this program.

8.  Every month, Wireless Zone is randomly selecting customers who signed up for SMS text messages from the previous month to win. Winners will get their device paid off, up to $1,000. No purchase necessary. At the time of the announcement, the first and second round of winners had already been chosen.

Launches Annual Backpack Giveaway

9.  At the beginning of July 2021, Wireless Zone launched its annual Backpack Giveaway. Each year, it costs more and more money to send one child to school. According to the most recent Huntington Backpack Index, it costs $1,017 to send one child to elementary school, $1,277 to send one child to middle school, and $1,668 to send one child to high school. When a child shows up to their first day of school with the right supplies, they’ll feel more prepared and confident. Wireless Zone wants as many kids as possible to feel ready to take on the school year and achieve great things.

10.  Wireless Zone stores across the country will be handing out free backpacks to local children who come into the stores. The backpacks are only available at select locations, but many franchisees do participate in the annual event. At some stores, the pack giveaway has a fair-like feel with face painting, crafts, and are organized by other local businesses and non-profit organizations.

11.  The School Rocks Backpack Giveaway will take place on August 1st and the backpacks will be available on a first-come, first-served basis. Each backpack is stuffed full of school supplies and is given away with no strings attached. Parents and kids don’t have to purchase anything or sign up for service to receive the packs. They have to come into the store when the packs are still available.

Company History

12.  Wireless Zone was founded as The Car Phone Store in 1988 by Russ Weldon in Wethersfield, Connecticut. At the time, wireless technology was very new and most people were skeptical that it would stick around for long. However, Weldon realized the potential of wireless technology and opened The Car Phone Store to sell these new products. Weldon’s gamble paid off and the company grew as more people became interested in wireless products. He opened additional stores around Connecticut.

13.  As the brand continued to grow and expand its offerings, the company changed its name to Wireless Zone in 1999. The following year, Verizon Wireless was founded, and Wireless Zone was one of the first stores to offer Verizon’s products. The partnership fueled the growth of Wireless Zone and the company remains one of Verizon’s Authorized Retailers.

14.  Wireless Zone continued to grow around the United States and in 2012, it was acquired by Canadian company Glentel Inc. for $83.3 million. Then, in 2016, Wireless Zone was sold to Round Room, LLC.

Entrepreneur’s Franchise 500

15.  Wireless Zone ranked No. 118 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Wireless Zone franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Wireless Zone’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  335
• Outlets at the End of the Year:  374
• Net Change:  +39

2019

• Outlets at the Start of the Year:  374
• Outlets at the End of the Year:  403
• Net Change:  +29

2020

• Outlets at the Start of the Year:  403
• Outlets at the End of the Year:  412
• Net Change:  +9

Company-Owned

2018

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2019

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2020

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• Wireless Zone franchisees sell and service wireless telephones, wireless data, satellite communications, personal communications devices, and other forms of wireless, wireline, and Internet-based communication devices, services, and accessories, and entertainment and security products and services.

• Below are tables containing financial performance representations based on the Provider’s postpay activations and upgrades data for all franchised Stores for the calendar year 2020, as provided to Wireless Zone by its Provider. The Provider reports postpay activations and upgrades data to Wireless Zone using a reporting system applicable to all of the Stores. Wireless Zone has not audited these figures.

Part 1 – Number of Postpay Activation and Upgrade Transactions

• The average number of postpay activation and upgrade transactions in the tables are net of deactivations.

• Wireless Zone has omitted the first month of data from all new franchise locations in 2020 that were open less than half the month during the first month.

• Wireless Zone offers substantially the same services to all of the Stores whose data is reported in the tables below as it does to new franchisees. New Stores will offer substantially the same products and services to consumers as were offered by these Stores.

• The first table reports data for all 399 Stores that were open as franchised Stores during the entire calendar year 2020.

• The second table reports data for the top 10% of the 399 franchised Stores that were open during the entire calendar year 2020, and the third table reports data for the bottom 10% of these 399 franchised Stores.

• The rankings of the top 10% and bottom 10% of these 399 franchised Stores were based on the total number of transactions (postpay activations and upgrades combined) per Store per month.

Franchised Stores Open 12 Full Months in 2020 (399 Stores)

• Average Number of Postpay Activations Per Store Per Month:  44
• Median Number of Postpay Activations Per Store Per Month:  39
• Average Number of Upgrades Per Store Per Month:  99
• Median Number of Upgrades Per Store Per Month:  88
• Average Number of Transactions Per Store Per Month (Postpay Activations and Upgrades Combined):  142
• Median Number of Transactions Per Store Per Month (Postpay Activations and Upgrades Combined):  126

Top 10% of Franchised Stores Open 12 Full Months in 2020 (40 Stores)

• Average Number of Postpay Activations Per Store Per Month:  84
• Median Number of Postpay Activations Per Store Per Month:  78
• Average Number of Upgrades Per Store Per Month:  205
• Median Number of Upgrades Per Store Per Month:  191
• Average Number of Transactions Per Store Per Month (Postpay Activations and Upgrades Combined):  289
• Median Number of Transactions Per Store Per Month (Postpay Activations and Upgrades Combined):  264

Bottom 10% of Franchised Stores Open 12 Full Months in 2020 (40 Stores)

• Average Number of Postpay Activations Per Store Per Month:  19
• Median Number of Postpay Activations Per Store Per Month:  18
• Average Number of Upgrades Per Store Per Month:  38
• Median Number of Upgrades Per Store Per Month:  36
• Average Number of Transactions Per Store Per Month (Postpay Activations and Upgrades Combined):  56
• Median Number of Transactions Per Store Per Month (Postpay Activations and Upgrades Combined):  59

Part 2 – Gross Revenue and Gross Profit Information

• Beginning in January 2016, Wireless Zone changed its royalty model to be based on gross profit generated by franchisees, and for the first time, began calculating an adjusted gross profit for each franchise location.

• The information in the chart that follows reflects those franchised locations operating under the new gross profit model for the whole year.

• Wireless Zone omitted the first month of data from all franchise locations in 2020 that were open less than half the month during the first month.

• Based on its calculations, Wireless Zone compiled the chart below, showing the average and median gross revenue, gross margin percentage, gross profit, and activations and upgrades each month for the top 20% of those franchises on the gross profit model, the second 20%, the middle 20%, the fourth quintile, and the bottom 20%.

• As used in the charts below, and in Wireless Zone’s Franchise Agreement, the following terms are defined:

• “Allowable Cost” means (i) cost attributable to Wireless Zone-approved devices, products, accessories, goods, and services sold at the Store, as set forth in the WZ LLC Price Sheet; (ii) Fees; (iii) Chargebacks: and (iv) Non-Return Chargebacks.

• The cost attributable to any device, product, accessory, good, or service will be determined based on the WZ LLC Price Sheet in effect at the time of sale. Allowable Costs do not include administrative costs, sales costs, overhead, business costs, corporate costs, labor, depreciation, inventory, rent, taxes, or any other kind of operational, business, administrative, or regulatory cost or expense.

• “Gross Profit” means, for any calendar month, the Gross Revenue of the Store less Allowable Cost.

• “Gross Revenue” means all revenue received from or in connection with the Store, including but not limited to the following: (i) sale of devices, products, accessories, goods, and services; (ii) commissions; (iii) 50% of residuals; (iv) device trade-ins; (v) customer fees; and (vi) other payments from the Provider or any supplier or vendor to WZ LLC that may be distributed to a store owner.

• Gross Revenue does not include: (i) incentives or other short-term sales program compensation funded by WZ LLC; (ii) market development funds; and (iii) co-op advertising funds.

Quintile 1 (74 Franchised Locations)

• Average Gross Revenue:  $2,754,642
• Highest Gross Revenue:  $5,065,125
• Lowest Gross Revenue:  $1,922,319
• Average Gross Profit:  $729,170
• Highest Gross Profit:  $1,354,426
• Lowest Gross Profit:  $545,450
• Weighted Average Gross Margin Percentage:  26%
• Average Net Activations and Upgrades:  2,999

Quintile 2 (74 Franchised Locations)

• Average Gross Revenue:  $1,826,039
• Highest Gross Revenue:  $2,460,443
• Lowest Gross Revenue:  $1,381,245
• Average Gross Profit:  $476,981
• Highest Gross Profit:  $544,039
• Lowest Gross Profit:  $412,103
• Weighted Average Gross Margin Percentage:  26%
• Average Net Activations and Upgrades:  2,046

Quintile 3 (75 Franchised Locations)

• Average Gross Revenue:  $1,414,664
• Highest Gross Revenue:  $1,836,049
• Lowest Gross Revenue:  $1,030,571
• Average Gross Profit:  $369,277
• Highest Gross Profit:  $410,765
• Lowest Gross Profit:  $334,743
• Weighted Average Gross Margin Percentage:  26%
• Average Net Activations and Upgrades:  1,573

Quintile 4 (75 Franchised Locations)

• Average Gross Revenue:  $1,118,802
• Highest Gross Revenue:  $1,450,809
• Lowest Gross Revenue:  $784,537
• Average Gross Profit:  $294,320
• Highest Gross Profit:  $334,186
• Lowest Gross Profit:  $255,040
• Weighted Average Gross Margin Percentage:  26%
• Average Net Activations and Upgrades:  1,264

Quintile 5 (75 Franchised Locations)

• Average Gross Revenue:  $807,339
• Highest Gross Revenue:  $1,394,107
• Lowest Gross Revenue:  $416,025
• Average Gross Profit:  $206,545
• Highest Gross Profit:  $254,857
• Lowest Gross Profit:  $90,286
• Weighted Average Gross Margin Percentage:  26%
• Average Net Activations and Upgrades:  895

Median (373 Franchised Locations)

• Median Gross Revenue:  $1,405,118
• Median Gross Profit:  $367,949
• Weighted Median Gross Margin Percentage:  26%
• Median Net Activations and Upgrades:  1,556

Average (373 Franchised Locations)

• Average Gross Revenue:  $1,584,297
• Highest Gross Revenue:  $5,065,125
• Lowest Gross Revenue:  $416,025
• Average Gross Profit:  $415,259
• Highest Gross Profit:  $1,354,426
• Lowest Gross Profit:  $90,286
• Weighted Average Gross Margin Percentage:  26%
• Average Net Activations and Upgrades:  1,755

• These financial performance representation figures do not reflect the costs of sales, operating expenses, freight expenses, inventory loss expense, royalties, or other costs or expenses that must be deducted from the gross revenue or gross profit figures to obtain your net income or profit.

• The data reported in the table above are averages and could vary greatly by geographic region, the length of time the Store has been in business, sales volume, sales mix, your particular Provider, the length of time that Provider has been operating in the area, the terms of contract with the Provider, the service plan selected by the Store customer, and customer usage.

• Some Stores have earned these amounts. Your individual results may differ. There is no assurance that you’ll earn as much.

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