Franchise Investment in India: Fees, Setup Costs & Royalties

A Complete Breakdown of Franchise Fees, Setup Costs, Working Capital, and Ongoing Royalties in India

One of the first things that each new potential franchisee ponders is the question of how much money I really require to open up my own franchise business. It needs to be understood that the amount of investment required can be quite variable, and it can depend on various aspects such as the franchise brand, industry sector, city in which the franchise operates and the format of the franchise. The investment requirement for franchises in India could range anywhere between ₹50,000 and a few crores depending upon whether the franchise is a micro-franchise or master franchise of an international fast food brand.

The Franchise Fee: Your Entry Cost

The franchise fee is the lump-sum payment made by the franchisee at the time of initiating the franchise agreement to acquire the brand and other aspects of the franchise from the franchisor. The franchise fees in India could range anywhere between ₹50,000 for a small Indian brand and ₹25 lakhs and above for an established international franchise brand. Franchise fees usually consist of training fees, brand licensing costs, operational manuals, marketing resources, and the like. It is a non-refundable fee that you pay to become a part of the franchise network of the franchisor.

Setup and Infrastructure Investment

Apart from the franchise fee, setting up your franchise business comes with a lot of financial expenditure. The costs involved in setting up include interior fitout, furniture, signage, kitchen/service equipment for the service/food franchise, computerization/IT system and POS software, and opening stock. In case of a small food kiosk franchise, the cost involved may be from Rs 2 lakh to Rs 5 lakh. In case of a full format restaurant franchise, the cost involved may be as high as Rs 20 lakh to Rs 50 lakh or even more. It is very essential that you get quotations of the estimated cost involved from the franchisor as well as at least two other independent contractors.

Working Capital: The Cost Most Franchisees Underestimate

Working capital is basically the sum of money required for the daily operations of your franchised business until sustainability is achieved. Typically, it will take between three months and one year for any business franchise to achieve break-even. Until a business achieves break-even, one needs sufficient money to pay for rent, salaries, utility bills, procurement of goods, royalties and marketing expenses without any income at all. By way of general practice, always try to set aside at least three to six months' worth of operating expenses as working capital before opening up your franchise. The main mistake that people make when beginning their business franchises is not budgeting sufficient working capital.

Ongoing Royalties and Marketing Fund Contributions

One of the costs franchisees will incur throughout the period of the agreement is the recurring royalty payment. In most cases, the franchised businesses charge a royalty fee of between 4 percent and 10 percent of the gross monthly revenue that the business earns for the privilege of using the name of the business and receiving the continued training and support from the franchising company. There is also the possibility of franchise owners having to pay an extra marketing fund fee, which is usually between 1 percent and 3 percent of the total revenue earned.

Total Franchise Investment by Sector in India

Concluding the total cost of investments for franchises in popular industries in India: For a logistics/courier service franchise, the required investment is from ₹1 lakh to ₹5 lakh. For an education/coaching center franchise, the required investment is from ₹3 lakh to ₹20 lakh. For a retail kiosk / small format franchise, the required investment is from ₹2 lakh to ₹15 lakh. For a food kiosk/cloud kitchen franchise, the required investment is from ₹5 lakh to ₹25 lakh. For a mid-format restaurant franchise, the required investment is from ₹15 lakh to ₹60 lakh. For a healthcare / diagnostic franchise, the required investment is from ₹10 lakh to ₹50 lakh. This includes franchise fees, setup cost, and working capital for three months.

Plan Your Finances Before You Sign Anything

Knowing the total costs associated with a franchise business – including the franchise fee, start-up costs, working capital, and royalty payments – forms the basis of any well-informed decision to invest in a franchise. Do not make an assessment of a franchise based solely on its franchise fee. Rather, work out the total amount of money you need to invest in the business, project its income and profits using conservative estimates, and make sure that you have enough funds to get the business to break-even stage.