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What does the term ‘pilot franchise’ mean?

Author: Vicky Wilkes

answered by Vicky Wilkes

Senior Associate at Squire Patton Boggs (UK) LLP

A ‘pilot franchise’ is the name commonly given in franchising to a test phase that aims to establish whether a proposed franchise is conceptually and financially sound, prior to becoming a full-scale franchise operation. A pilot franchise should allow both a franchisor and pilot franchisee to operate the franchise business with the aim of identifying any problem or potential problem areas, and consider any lessons that can be learned from operating it.  It should help a franchisor to reflect on the results of the test run and assess whether franchising is right for its business and adjust, where appropriate, various aspects of the franchise operation before the franchise concept is launched on a full scale.  A pilot franchise should operate in similar circumstances to those that will be operated by a franchisee. It typically needs to be run for at least 12 months, or longer if there is a seasonal element, to allow proper time to assess the effectiveness of the franchise.  In the event that a pilot fails, it justifies its value by averting more serious consequences of a fullscale operation.

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