Learn how retail phone stores operate and how you can avoid wasting some of your money.
I previously worked in cellular sales at retailers for Verizon, AT&T, and T-Mobile for over seven years! I would love to explain how they operate and why they might not be the best place to go if you’re looking to save money.
The Retail Operation
The way most retail phone stores operate is not dissimilar from how car dealerships or mattress stores operate.

The specifics of the relationships between large wireless service providers like Verizon, AT&T, and T-Mobile, and their third-party contractors, are unique. So we will simplify and generalize the details a bit.
In general, the wireless service providers handle the larger business of offering cellular service. They contract out many of their operations to third-parties, though they also maintain some corporate-owned flagship stores. Wireless providers create the cell plans, set the rates, maintain the network (or hire contractors to maintain the network), provide customer service, manage customer accounts, and collect their recurring revenue from phone bills. They provide a lot of the software and infrastructure that makes everything work at a higher level.
The vast majority of brick and mortar stores are owned by large contract retailers. Companies such as Victra (for Verizon), Prime Communications (for AT&T), and Wireless Vision (for T-Mobile), handle the retail operations. Some third-parties may have agreements to sell service with multiple providers, though the largest retailers work only with one provider.
Retailers lease the stores, hire the store employees, and deal directly with customers in person. Retailers have several sources of income.
Monthly Service Revenue
A primary goal for all retailers is to sign up new customers. Retailers earn a commission on every new line they register. Depending on the provider and the plans selected, this could be as little as $10 or as much as $100 the retailer earns per each new line.
Retailers earn an additional lump-sum payment from the provider for users who upgrade their phones under an installment plan.
The monthly cost for the actual service (talk, text, data) portion of the bill is structured differently depending on what company you go with. Some providers offer discounts if you have multiple lines on your account. The 3 big providers in the USA offer single-line plans ranging in price from $40 per month to $90 per month. Plans with multiple lines can be as low as $25 per month per line.
With the service plan selected, customers have to pick a phone. Normally, when customers come into the store, they’re getting a new phone. Retailers still earn a small commission if you’re bringing your own phone.
The vast majority of devices are sold through zero-interest financing programs, which depend on a credit check. A customer may receive anywhere from $0 to $5,000+ worth of credit to purchase phones and other devices. Financing plans may be as little as 12 months and go for as long as 36 months, with some offering trade-in incentives after a certain point. The primary purpose of device financing offers is to lock customers into paying the service charges for 2+ years.
Some providers still offer traditional “2-year contracts” which are basically an obfuscated version of an installment plan. Essentially, they’ll just charge you more for the service to offset the hidden cost of giving you the phone for a steep discount.
Here is a comparison between how much a phone might cost on a device installment plan vs a 2-year contract for one individual.


Usually, the total overall cost of buying a device and service on a two-year contract is about the same as buying it on a device payment plan. The costs are just more hidden in a two-year contract and you still have to pay the higher rate of service after two years expires, since the installment plan doesn’t fall off the bill.
Canceling a two-year contract always results in an early termination fee, which is usually about the same as what the device would cost to pay off had you done a device payment plan.
For the rest of this guide, we’ll focus on device payment plans, since two-year contracts are being phased out, or are no longer offered by most providers.
Provider Service Revenue
Service is often the most expensive portion of the bill, followed closely by any device payments. Some providers offer discounts if you sign up with multiple lines, bringing the cost per-line down a little, but it’s still a ton of money. The reason service providers are able to pay out commissions on new lines and upgrades to retailers is because they’re earning anywhere from $600 for lines on family-plans to $1,000+ for lines on individual plans over a 24 month period.
Remember, I don’t have access to exact numbers. But I remember from my time in the industry that the retailers earned anywhere from 10% to 30% commission on selling the service alone.
In the example with our single-line phone plan, the service provider is getting $1,120 from the customer over two years. If the customer keeps their service for over a few months (usually 2-3 months), the retailer who sold the device on the plan is paid out their share, which might be $100-$200 in this case, depending on incentives.
Remember that with device payment plans, the service providers are counting on most people not paying off their devices early. Suppose you have a family of 4 and you finance 4 new iPhones at $800 each for 24 months. Half way through your device payment plan, if you want to switch providers, you must pay off a remaining balance of $1,600 all at once. Many families cannot afford to or don’t want to pay that amount at once, so they’ll keep their plans at least until all the phones are mostly paid off.
Retailer Device Revenue
Besides the commission retailers earn for signing people up for service, or renewing their device payment plans or “upgrades,” retailers have several opportunities to earn money on the devices they sell.
First, retailers are usually allowed to markup their phones, up to a certain limit. Since Apple has the brand-reputation and monopoly over Apple-branded “premium” products, retailers earn the least off selling iPhones. Usually, the markup on an iPhone is about $40. Apple likely keeps over 90% of the revenue on each new iPhone sale. So if an iPhone costs $800, Apple might get $760 and the remaining $40 is given to the retailer, with the total amount being paid by the customer financing the device.
Retailers earn significantly more when they sell Android devices. The markup might be anywhere from $50 on a low-end device ($300ish), to $250+ for a high-end Samsung or Pixel device. This is often why they’re able to offer better discounts on Android devices.
Phone Insurance Revenue
Any store you try to purchase a phone from will offer you a device protection plan, also referred to as phone insurance. Prices range from $8/mo for basic protection to $19/mo for premium protection offerings. AT&T and Verizon both use a company called Asurion to handle their device protection. T-Mobile uses Assurant. Any iPhone purchased will qualify for protection through either the provider’s offerings, or the Apple Care program directly from Apple.
The phone service provider and the insurance company are counting on customers forgetting to remove the insurance from their plans as the phone’s value decreases.
Low tier insurance offerings only replace or repair phones if they can get the old phone back. Some plans do not cover water damage.
Higher tier insurance offerings cover lost/stolen phones and offer additional technical support and security services.
When I worked in the industry, I would highly recommend insurance plans to people in these situations:
- Kids and teenagers with mid-tier or high-end smartphones, who play sports or are rough with their things
- People buying the expensive $1,000+ “flagship” smartphones
- People who have a history of losing or breaking their phones
Of course, the consumer retailers push the most expensive protection plans on everyone. I’ve even worked at some stores which forced customers to add the insurance to their plans whenever they got a new phone. One of my old managers just threw it onto people’s accounts without telling them.
If you think you might need insurance, please consider:
- Review all the offerings online. Retailers only make a commission on the high-tier insurance plans. You might be fine with the $8/mo insurance plan, but the retailers won’t even mention that it’s an option. If you will not use the security and tech support options of the high-tier plans, which they count on most people not using, you likely don’t need the highest offering.
- You likely don’t need insurance on low-end smartphones. It makes little sense to pay $15/month to protect a phone that costs you $12/month. You could literally just buy a second backup phone.
- You should remove the insurance as soon as you’re comfortable paying off the remaining device installment amount in full. For example, you might get insurance on a $1,200 phone, but take it off after 18 months when you only have $300 left to pay for it.
Keep in mind, Asurion and Assurant are in the business to make money. If you lose your phone or it breaks, here’s what usually happens.
- You file a phone claim online or over the phone
- You are charged a deductible, if applicable. This could be anywhere from free to $200+ depending on your plan and what happened.
- They ship a refurbished phone back to you overnight. If you’re very lucky, you’ll get a new one. But 9/10 times it’s refurbished.
- The refurbished phones usually work fine. But I’ve seen a fair number of duds.
- I’d estimate you have about a 10% chance of getting a malfunctioning replacement.
- This means you’re still without a phone from the time of the claim until it arrives.
- You cannot just walk into a store and pickup a replacement the same day.
- Hopefully, you backed up your data to the cloud, because there are no data recovery options.
- You ship your old broken phone back to them, or you’re charged another few hundred dollars.
If only your screen breaks, you may be able to pay a deductible ($100ish) and have it repaired by a technician.
Naturally, the bulk of the insurance premiums go to the wireless service provider and the phone insurance company. Retailers usually earn a flat-rate commission ($10-$40) every time insurance is added to a new or upgraded phone.
My final recommendation on insurance: Get a mid-tier plan if you think you need it for a while on an expensive smart phone. If you’ve never broken a phone before, you probably don’t need it. Weigh the monthly cost of the insurance plan and the cost of the deductible against the balance remaining on your phone every few months.
Add-on Devices
By Add-on devices, I’m referring to non-phone data devices on your plan. Things like iPads, Android tablets, smartwatches, hotspots, etc.
Plans for these devices are usually cheaper than plans for the smartphones. Usually, you must have at least 1 smartphone to qualify for plans with these devices.
Prices range anywhere from $5/mo for service on a smartwatch to $20+/mo for service on a tablet or hotspot.
Devices may be finances on device payment plans, just like phones. There is usually an activation fee or installment plan setup fee.
Service providers earn their money the same way they do with the phones on these. The only difference is it’s not quite as much. Retailers earn a commission on activating the new lines and starting device payment plans, just like with phones.
Accessories
The final, and perhaps most price-gouging aspect of retail phone stores is accessory sales.
The sales rep has talked you into buying an expensive new phone on a payment plan, with a fancy new Apple Watch and a “free” tablet. They’ve talked you into protecting all your devices for $30/mo, at least to start, since you can “always take the insurance off later.” The sales rep stands up and excuses themselves for a moment as the devices are being activated. Now, they’re walking around the store grabbing 10 different things off the wall. The sales rep sits back down at the desk and lays them all out in front of you.
Cases
The average case at retail stores I worked in ranged in price from $25 to $70. Most were around the $40-$50 mark. The same cases, or similar cases, can be found on Amazon or eBay for $5-$20.
The actual reported cost for phone cases in my systems was usually somewhere in the $5-$15 range.
The cases they sell in store aren’t always that bad. Just understand that you’re paying a 200%+ markup on the cases. I always recommend you buy a case, but maybe not from a retail store.
OtterBox and Lifeproof cases are excellent cases and usually aren’t marked up as much by the retailer. They have great warranties and customer service. They’re the only cases that I think really justify the $50+ price tag. If you’re looking for something cheaper, look for SUPCASE Unicorn Beetle cases – they are great alternatives at half the price.

Screen Protectors
Most screen protectors are useful and will protect your screen from scratches and light drops. The markup on screen protectors in-store is usually well over 1,000%.
There are three types of screen protectors.
- Plastic film screen protectors
- These are great at adhering to the display and rarely fall off.
- They protect from light scratches, like scratches from your fingers or change in your pocket with your phone.
- Tempered Glass
- These are thicker and protect the screen from deeper scratches with things like keys.
- They offer limited protection if you drop the phone on its face, on say, a rocky road. There’s still a 50% chance your actual screen will be broken, but it might save it.
- These crack easily. It’s better than the phone screen cracking, but you may have to replace them after a drop or scratch.
- Liquid Glass
- Liquid glass is a strengthening agent that is applied to phones with something similar to an alcohol-prep pad.
- Liquid glass screen protection is a rip-off and you should never buy it.
- Sometimes it makes the phone screen finger print resistant. Which is nice.
Most of the stores I’ve worked in sell a single screen protector for anywhere from $30 to $70. You can buy a whole pack of screen protectors online for $10. Even if you mess up putting it on the first time, you’ll have plenty of backups.
The only reason to buy a screen protector in-store is if you really want someone to put it on for you. Sometimes if you’re nice, the reps will put ones you bought online on for free. It’s nice to tip them though.
Chargers
Most of the chargers sold at retail stores are mid-grade at best. They’re usually a step above gas station chargers, but still not always the greatest. Again, for the price of one charger or charging cable at a phone store, you could have bought several high-quality ones online. My recommendation is to not spend more than $15 on a charger if you don’t know the brand.
Additional Service Fees
Set-up Fee
Some stores will charge you $20+ to help set up your phone. This usually involves turning the phone on, making sure it works, and transferring your data over from the old phone.
The device setup fee is separate from the activation or device payment plan setup fee. It is issued entirely by the retailer, is charged in-store, and can be taken off at whim. The activation fees that show up on the bill are mostly out of the retailer’s control.
If you are persistent, managers will usually override the setup fee. If you don’t require any help setting up your phone, then you should demand it be removed from the invoice. Sales reps may not be able to remove the fee without a manger, or without calling a manager.
Retailers will try to charge this fee to everyone, as if it’s just a required cost of doing business. It is not. You should only pay this if you actually want help to get your phone(s) setup.
Redux Water Protection
Redux is a service offered at some stores. It’s offered as a water-protection plan when you buy your phone.
The idea of Redux is neat. If your phone is submerged in water and won’t turn on, you take it to your nearest store with a Redux machine.
The Redux machine is a large vacuum-sealed chamber where store reps can place phones and tablets. It literally sucks all the water out of the device until it’s dry.
If you have a membership, it’s low-cost or free to have the water sucked out. If you didn’t buy the membership for $30 when you got the phone, it’s something like $10 to try it and $100 if it works.
Three of the five devices I tested with this machine failed to return to working condition after being submerged in water.
I think your money’s better spent on regular phone insurance than Redux if you’re worried about water damage. Just make sure your plan covers water damage. A replaced phone is better than a dried out, half-working, water damaged phone. Most phones offer water resistance, anyway.
Total Sale Commission Estimate
Now, let’s break down the numbers on a profitable sale and see how much all parties get paid. Remember, this is highly speculative. A “high quality” sale will be a sale in which the rep sells the customer on..
- Multiple devices (a phone and a tablet, multiple phones, etc.)
- High-tier insurance on all or most devices
- 2-3 accessories with each device (a charger, screen protector, and case on each device)
A low-quality sale is a sale where the rep only sells the devices with no protection plans, additional services, or accessories.
Here’s an example of an individual high-quality sale, with my estimated commission on each item that the retailer gets. In this scenario, the customer is buying a high-end Android smartphone with a tablet and accessories.
- High-end Samsung Phone on payment plan – $1,000
- $200 profit for store on device
- Phone is a new line
- $100 payout for store
- Phone has high-tier insurance $15/mo
- $30 payout for store
- Got the “free tablet” 2 year contract deal
- $20/mo for service
- $40 payout to store
- Full accessory bundle
- A $45 case, $55 screen protector, $35 charger, and a $55 case for the tablet
- $190 cost to customer, $140 profit for store
Assuming the customer is on a high-tier plan (Say, $65/mo) with all the above, here’s how the totals shake out over two years for the phone and the free tablet.
- Phone Service Plan + BS Fees: $1,704
- Tablet Service + BS Fees: $504
- Insurance (assuming customer forgets to remove it after a few months): $360
- Device Payments: $1,000
- Activation Fees: $80
- Setup Fees: $40
- Accessories: $190
Total Paid, and Commissions Earned
- Total paid by a customer for phone, tablet, services, fees, and accessories, over 2 years: $3,878
- Total gross revenue for cellular provider: about $2,400
- Total gross profit for the store on sale: $550 (excluding labor, overhead, etc.)
- The remaining amount is the portion paid to the insurance company, the device supplier, and the wholesale price for each accessory
The sales representatives working at phone stores almost always get paid hourly + commission. The hourly rate is usually fairly low, anywhere from $10 to $20 depending on location. A reasonable payout for a sales rep is around 10%, so the rep might get paid $55 on a sale that has a gross profit of $550 for the store. Though there are often incentives and bonuses for certain products and services, which may change throughout the year. Some retailers just pay hourly with no commissions, and others might just pay a flat rate of $5 to $10 per sale.
On a low-quality sale, like an iPhone activation with no additional accessories or services, might only earn $50 for the store and $5 for the rep.
Device Promotions
Deals on cellular devices work in a lot of different ways. They’re often a collaboration between the service providers, the device manufacturers, and the wireless retailers. Though sometimes only one or two parties might be involved in the promo. Again, I’m speculating since I was not an executive and have no way of knowing the specifics of deals made.
Device Discounts Applied Monthly
To market effectively, most device promotions start with the wireless service providers. They use device promotions to attract new customers or keep existing customers on 2-3 year device payment plans. Given the $1,000+ an average phone line brings in over two years, it’s no surprise they don’t bat an eye at offering a $100-$200 discount on an iPhone, even if it means someone’s taking a slight loss on the device sale. In the case of Apple, offers are usually a bit more limited, since Apple does not budge much on their pricing.
For other device manufacturers, like Samsung or Google, it’s common to see significantly larger discounts offered. These deals are likely created in coordination between the service providers and the device manufacturers. Suppose a high-end Samsung phone retails for $1,000. Retailers can get the phone for $850 and the phone costs Samsung $500 to produce. The cellular service providers negotiate a deal with Samsung to sell their phone to consumers for $400 off. Samsung knocks $200 off the price of the phone to the service providers and retailers, and the service providers take a $200 hit on each line activated, which they quickly earn back in monthly service fees. Now, the customer gets the $1,000 phone for $600, the service provider gets their monthly revenue for another 2-3 years, and the device manufacturer is still earning a healthy 30% profit on their phone.
The caveat for customers is that they have to keep their service for two or three years, or they’ll lose out on part of the promotion. The $400 off the Samsung phone in the example isn’t given as a lump-sum. It’s usually split across the two or three-year term the device payments last. So, on a two-year plan, the customer is billed $41/mo for the phone with a $16/mo discount, reducing their payment from $41/mo to $25/mo. If the customer cancels their service early, they still owe the remaining total balance of the phone without any remaining monthly discounts applied. So, if a customer canceled their discounted $1,000 phone plan after 1 year instead of 2, they would have only taken advantage of $200 of the $400 offer. In other words, the phone would cost $800 ($200 off $1000) instead of $600 ($400 off $1000) at the half-way mark since they didn’t complete the plan.
Trade-in Discounts
There are many types of trade-in discounts. A common trade-in deal is where customers trade in an old phone and get a larger amount off a new phone. For example, an iPhone 12 might normally be worth $150 as a trade in. With a trade-in deal, they’ll offer you $400 off the new iPhone for trading in your old iPhone 12.
Like standard device discounts, the service provider is subsidizing the phone sale to get the customer to commit to another 24-36 months of service. The $400 off is being applied as a monthly service discount and not a lump sum payment to the customer. The remaining trade-in promo balance is being earned back by selling the traded-in device to another contracted device refurbisher.
Retailer Discounts
Retailers receive a smaller portion of the pie to begin with on every phone sale compared to the service providers. Paying employee salaries, leasing store locations, moving inventory, and general administration is very expensive. The reason they sell screen protectors at an enormous markup and charge setup fees is because it’s the only way to make the business profitable. It’s not uncommon for smaller stores to only sell an average of 4-5 devices a day. Retailers have limited wiggle room with device pricing and may not be allowed to sell devices for over or under certain amounts, based on their contracts.
So if third-party retailers offer any direct discounts themselves, it’s usually on their accessories, since that’s what they have the most control over and earn the most margin on. Usually, accessory discounts are given with the purchase of other devices or accessories. In my example from earlier, a screen protector, two cases, and charger could easily run $190. The retailer might offer an additional $40 as a bundle deal off since the customer bought 4 things. Since the accessory markup is so high to begin with, they still earn a very healthy profit on all those items.
Summary
Operating a third-party retailer for any wireless service provider is a challenging business with a lot of overhead and limited control over branding, pricing, and policies. There is a lot of risk involved with leasing retail locations and the employee turnover rate is high. Customers complain that everything’s too expensive, employees always want more money, and the business is heavily tied to the whims of the service provider.
Retailers primarily earn money by:
- Setting up new accounts on their provider’s network
- Starting device payment plans or contracts for existing customers’ new devices
- Selling additional services like phone insurance and Redux
- Selling accessories at a high markup
- Charging service or set up fees
For Consumers
In my opinion, any consumer with moderately good technical skills should avoid buying traditional postpaid cellular plans directly from the 3 large service providers, T-Mobile, Verizon, and AT&T. Do not buy your phones from retail stores unless it’s an emergency or you really need help to set the phone up. Most times, consumers will save significantly more money by purchasing prepaid plans through virtual network operators like Mint Mobile or even Verizon’s own Visible. In my experience, Visible and Mint Mobile have served me just as well as all 3 of the premium offerings in terms of data speed, reliability, and coverage, with the flexibility of being able to cancel or change service at any time. Prepaid services rarely charge upgrade or activation fees, and the additional fees for the FCC and E911 service are built into the price.
Phone manufacturers like Apple and Samsung often offer deals on their devices that are similar to ones offered through wireless providers. Apple and Samsung both offer direct trade-in programs for their devices. Apple offers incentives for students and Samsung regularly cuts prices on its devices.
Ideally, purchase your phone outright if you can afford it. If you cannot, you may still qualify for zero interest payment agreements directly through programs like Samsung Financing or the Apple Card.
Finally, mid-tier Android phones and 2-3 year old iPhones offer the best value for your money. You can get a very nice mid-tier phone for $400 that works fast, takes decent pictures, plays YouTube videos, and shows you websites. Most people do not need the latest $1,000+ flagship phones, though they are nice if you have the cash.
Value of Retail Stores
You will pay significantly more at a retail store than you would if you followed some of the steps outlined above. However, retail stores are certainly not without value. I think retail stores are especially helpful in cases where:
- You are not good with technology and need help to set up your phone
- You run a small business and need reliable in-person customer support
- You have an emergency and need a phone relaced immediately (understanding that insurance won’t work and you have to pay the full amount)
- Your phone needs a new sim card or you have a general question
- You urgently need a charger that’s better than what they have at the gas station
Just understand that you are paying a very significant premium for in-store customer service and convenience.
I plan on updating this guide in the future and adding another one focused just on saving money by comparing prices between premium postpaid plans and the affordable prepaid offers!