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Conducting pilot tests is crucial in refining your franchise concept and expanding your franchise network. Pilot tests enable you to evaluate various aspects, such as your business model, new products, services and operational strategies. These tests take place on a small scale, and if successful, you might roll out changes across your network. The piloting approach helps you to identify potential issues, gather valuable feedback and make necessary adjustments to ensure success. However, while the benefits of pilot testing are clear, it is equally important to consider the legal implications of this practice. This article will explain key legal considerations for franchisors conducting pilot tests in their franchise.
1. Pilot Testing Standards
The British Franchise Association (BFA) requires its franchisor members to pilot their franchise concept for at least one year and in at least one location before starting to franchise. The BFA sets particular standards for franchisors and franchisees in their Code of Ethics, including this pilot testing standard.
As a franchisor, you must be aware of the BFA’s standards whether you are a member of the Association or not. Whilst BFA members must adhere to the Code, its principles are also considered franchising industry standards and best practices. Therefore, you should pilot your franchise concept for at least a year before recruiting franchisees and launching your franchise network.
2. Revamping Franchise Locations
You might contractually require franchisees to revamp their franchise units occasionally. Depending on the extent of such revamping, consider conducting a pilot operation. For example, if the revamp involves significant operational changes, you should test it on a small scale to determine whether it will succeed. This testing is vital as it helps determine whether a revamp is worth your franchisees’ investment. Significant and costly changes are unlikely to be worth their time and effort if they are equally or less successful than their current business model.
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3. Contractual Considerations
Pilot tests, whether they take the form of a pilot franchise or a smaller pilot of a new product or service, are experimental. Their experimental nature means they carry a level of risk. There is no guarantee of success. This risk means your franchise agreements must enable you to conduct pilot tests and should sufficiently protect franchisees from the potential detriment of pilot operations.
The necessary contractual considerations depend on the type of pilot testing you carry out. The following table outlines the contractual implications of the different kinds of pilot testing.
| Type of Pilot | Necessary Contractual Considerations |
| Pilot franchise | A pilot franchise involves testing a whole franchise business concept. A franchisor should conduct this testing for at least a year before establishing a franchise network. Suppose you recruit a franchisee to run the pilot operation. In that case, your franchise agreement should reflect the potentially short duration of the contract and highlight, in particular, the level of risk the operation carries. If the pilot succeeds, consider the potential for the franchisee to eventually transition from a pilot agreement to a full franchise agreement. |
| Piloting new concepts, products, and services | You might use a select group of franchisees to trail new products, services and ideas. If you want a franchisee to conduct pilot testing, your agreement should reflect this. This step is essential to incorporate guidelines on pilot testing, ensure you are contractually permitted to require the franchisee to conduct such tests, and suitably protect the franchise from the risks pilot tests carry. |
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4. Updates to the Franchise Operations Manual
The franchise operations manual plays an essential role in your franchise relationships and, thus, the pilot testing process. You should treat the operations manual as a living document, updating it as necessary to reflect any significant developments within your franchise system. Ensure that it reflects the piloting process and updates your franchisees about the changes you make to your network as a result of successful tests.
5. Legal Review
Seeking legal advice regarding your pilot testing practices is a good idea. A lawyer can help you review aspects such as your:
- contracts and specific clauses of franchise agreements relating to pilot testing;
- pilot testing practices within your network; and
- pilot program materials, such as training documents.
Seeking advice can help mitigate risk, improve your piloting processes, and adhere to industry best practices.
Key Takeaways
Conducting pilot tests can be vital to reduce risk when starting a franchise and implementing significant changes in your network.
There are several legal considerations you should keep in mind regarding pilot tests. These include the following:
- pilot testing a new franchise concept for at least a year before formally franchising is an industry standard;
- if you require franchisees to revamp franchise locations, you may need to conduct a pilot for a suitable amount of time if it involves significant operational changes;
- ensuring the franchise agreements you share with the franchisees who conduct pilot tests set out the pilot process and enable you to require them to conduct such tests;
- updating the franchise operations manual in line with significant changes in your franchise network; and
- seeking legal advice to reduce risk and refine your piloting processes.
If you would like legal advice about conducting pilot tests in your franchise, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Pilot tests are essential for refining the franchise concept, evaluating new products, services, and operational strategies, identifying potential issues, gathering feedback, and making necessary adjustments before a full-scale rollout.
The BFA requires franchisor members to pilot their franchise concept for at least one year and in at least one location before starting to franchise. These standards are part of the BFA’s Code of Ethics and are considered industry best practices.
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