What Is a Franchise? A Complete Beginner's Guide for Indian Investors

A franchise business is a business model in which an individual or company gets the right to operate using another company's brand, products, processes and support system, usually in exchange for an upfront franchise fee and ongoing payments such as royalties.

Question   Short Answer

What is a Franchise Business?

A franchise business is a model in which you operate under an established company's brand, products and business system. In return, you typically pay an upfront franchise fee and ongoing royalties. The franchisor may provide training, operating procedures, marketing support and other assistance, so you don't have to build the business model entirely from scratch.

The scene in India has changed a lot by 2027. It is no longer just about opening a physical store. Now you have to run an omnichannel business - store plus website plus WhatsApp plus delivery plus marketplace - while using AI for demand forecasting, inventory and customer engagement.

In this guide, I will explain what a franchise is, how a franchise works, what the main franchise types are, how much a franchise costs, plus 8 new things happening this year that every Indian investor should know.

What Is a Franchise? A Simple Definition for Beginners

A franchise is a partnership between two parties:

• Franchisor: The company that owns the brand, trademark and operating system.
• Franchisee: You, the investor, who gets the right to run a business using that brand's system in a specific area or territory.

You are not buying the full company. You only pay for the right to use their system for some years - maybe 5 years, maybe 9 years. That right is written in one main paper and that paper is called the franchise agreement. This is the most important paper.

Like if you open a branded cafe, beauty salon or retail store that you have seen in other cities - then you are the franchisee of that brand.

How Big Is the Franchise Industry in India?

India is the second-largest franchise market globally after the US. Yes, after the US only India comes.

If we talk about the latest numbers -

India franchise industry value was around Rs 800 billion in 2023-24 and it can grow at 30 to 35 per cent every year. This info is from the FranCast Whitepaper on Franchise Forecast 2023-24, and Economic Times reported it in June 2023. The same whitepaper says that in the next five years, this industry will reach USD 140-150 billion.

As of that report, there are 4,600 active franchisors across sectors in India operating nearly 2 lakh outlets, and more than 300 companies start franchising every year.

The same report also found that 35 per cent of franchise concepts are from the F&B sector and Rs 5-10 lakh is the initial investment level for 40 per cent of franchisees.

These numbers explain why this market is different now. The market is bigger, more regional and more digital than ever before.

Read : Which Franchise Industries Actually Grow in India

How Does a Franchise Work? Step by Step

A franchise works when a brand lets you use its name and system. You invest, they train you, you run the store as per their standards and you pay a royalty from your sales. It is a simple give and take.

Here is how it actually works on the ground:

1. Brand builds the system - The company creates the products, branding, suppliers, and SOPs [standard operating procedures]. Everything is tested.

2. You apply for your city - You fill a form for your city or area. The brand checks if that territory is open.

3. You pay the franchise fee - This is a one-time fee to get the rights to use the brand for the agreed term.

4. You sign the franchise agreement - This legal paper records your territory, fees, royalty, support, and term. Never pay without this.

5. Brand trains you and helps with setup - They train you and your staff and help you with store design, equipment and launch.

6. You operate daily as per standards - You run the store daily as per their manual and pay royalty and marketing fees.

7. Your profit - Your profit is simple: Sales minus rent, staff salary, royalty, marketing, material and other costs.

What Has Changed in India's Franchise Industry Before 2027?

The industry has changed a lot in the last 2 years. These are 6 big shifts you should know:

1. Tier-2 and Tier-3 cities are driving growth: In 2024, Tier 2 and Tier 3 cities contributed approximately 40% of new franchise openings in India as per data from Franchise India, reported by Livemint. Brands are now actively looking beyond metros. Source: Livemint

2. Low-capex formats are growing fast: Kiosk, cloud kitchen, home-based, mobile van, micro-store, and shop-in-shop are growing. This matches the data that Rs 5-10 lakh is the entry level for 40% of franchisees. People want to start small.

3. AI for operations is now normal: Now brands use AI to check demand, manage stock, group customers and make daily reports auto. Deloitte India said AI will power a big part of the USD 2 trillion Indian retail market by 2030.

4. AI agents on UPI are coming: NPCI is making a list to check AI agents that will pay on UPI. This is part of Unified Agentic Protocol. Reuters said in Sep 2026 report that AI agents can do small payments without asking you every time, but only within limit you set. This is still being built in early 2026. [Source: Reuters, Sep 10, 2026]

5. UPI MDR update: Times of India said as per NPCI note, 0.4% MDR will be there on Person-to-Merchant UPI above Rs 2,000, max Rs 300 for Rs 75,000 and above bill, and this may start from Oct 15, 2026. Upto Rs 2,000 there is no MDR and that is 95%+ of P2M payment. But please check NPCI circular yourself before you make your margin sheet, this update is still new. [Source: Times of India, 2026 - To be verified with NPCI][P2M]

6. Omnichannel is now standard: Now store + website + WhatsApp + app + marketplace + delivery - all together is normal. Before you sign, ask who will own online data and who will do delivery.

Read : Top Work-from-Home Franchise Opportunities

What Are The Main Types of Franchise Businesses in India?

If you are new, this is important. There are mainly 4 types you will see in India:

1. FOFO - Franchise Owned Franchise Operated: This is the most common. You invest your money and you operate the store. You hire staff and manage daily operations. Best for first-time investors who want to be involved.

2. FOCO - Franchise Owned Company Operated: You invest the money, but the company operates the store with its own team. You get a profit share. This is common in retail and QSR, where brand control is important. Remember, FOCO does not mean zero work - you still need to monitor sales.

3. Master Franchise: You get rights for a full state or region. You can open your own outlets and also appoint sub-franchisees in that region. Investment is higher but so is the potential.

4. Multi-Unit Franchise: You agree to open multiple outlets in a set time, like 3 stores in 2 years. As per Franchise India data, 53 per cent of all franchises in India are now operated by multi-unit franchisees.

There is also COCO - Company Owned, Company Operated. This is NOT a franchise. The brand owns and operates it itself. I am mentioning it only for comparison so you don't get confused.

What Does a Franchise Cost in India?

A franchise in India can cost anywhere from a few lakh rupees for a small kiosk or service format to Rs 1 crore or more for a larger outlet. The total investment usually includes the franchise fee, setup costs, equipment, inventory, deposits and working capital.

40% of franchisees in India invest Rs 5-10 lakh for small formats, while larger formats need much more, as per the Economic Times report on FranCast data.

Here is what makes up the total cost:

• Franchise fee - One-time right to use brand for the term.
• Setup cost - Interior, equipment, signage, inventory.
• Royalty - Ongoing fee, varies by brand, often 4% to 10% on net or gross sales. Always ask if it is on gross or net.
• Marketing fee - 1% to 3% contribution to central marketing fund.
• Working capital - Rent deposit and salaries for at least 6 initial months.

Use this simple formula to check break-even:

Break-even months = Total Initial Investment / Average Monthly Operating Cash Surplus. Actual results will vary by location.

Always ask for the 24-month total cost, not just the initial investment they show in ads.

How to Start a Franchise in India - 7 Steps for 2027

To start a franchise in India, you need to fix your budget with 6 months of working capital, shortlist 3 brands, verify their CIN and GSTIN, talk to existing owners, visit a live outlet, get legal and financial review, and then sign.

1. Fix budget with working capital. Don't just see setup cost. Include 6 months rent and staff cost. This is where most people fail.

2. Shortlist 3 brands. Compare fee, royalty base, support, and outlet economics side by side. Don't fall for one brand only.

3. Verify the company. Check CIN on MCA portal and GSTIN on GST portal]. Ask for a GST invoice for any payment.

4. Talk to existing owners. This is non-negotiable. Speak to 2-3 owners from different cities. Ask about real sales and support after you pay.

5. Visit live outlets. Visit one outlet without prior notice. See the real customer flow.

6. Get legal and financial review. Get the agreement reviewed by a lawyer and projections checked by a CA before paying any token.

7. Sign and launch. Once everything is in writing, proceed with site finalization and hiring.

Documents to Request Before Paying Any Money

- Company incorporation proof and CIN

- GSTIN certificate

- Sample franchise agreement

- Fee schedule with royalty base clearly mentioned

- List of operational outlets with contact details

- Training and support plan in writing

- Disclosure summary

How to Check If a Franchise Is Profitable?

Franchise profitability depends on location, rent, staff cost, average ticket size and repeat rate. No brand can guarantee fixed profit. If someone guarantees profit, be careful.

Ask the brand for data of outlets running for 12+ months:

- Average ticket size and gross margin

- Rent-to-sales ratio [ideally below 15%]

- Staff cost ratio

- Break-even sales per day

- Store-level EBITDA - Earnings Before Interest, Tax, Depreciation and Amortization

- Payback period and same-store growth

- Closure rate and renewal rate

Common Mistakes First-Time Investors Make

- Paying token money in a hurry without reading the agreement.

- Not checking royalty base - gross vs net makes a big difference.

- Not talking to existing franchise owners.

- Ignoring working capital and thinking only setup cost is enough.

- Not accounting for UPI MDR if your average ticket size is above Rs 2,000.

- Assuming FOCO means zero work - you still need to monitor and audit.

Franchise vs Own Startup - Which is Better?

Conclusion

So what is a franchise business in 2027? It is still your own outlet run under an established brand's system, but now it must also be digital, data-driven and omnichannel to survive.

With around 4,600 active franchisors and nearly 2 lakh outlets, and with Tier 2/3 cities contributing 40% of new openings, the opportunity is large. At the same time, new realities like AI agents on UPI with spending limits and audit trails, and the proposed UPI MDR of 0.4% above Rs 2,000 from 15 October 2026, mean your unit economics need fresh calculation.

Don't rush. Understand the model, verify credentials on MCA and GST, talk to real owners, and get professional review. That is how you start right.

FAQs

1. What is a franchise business in simple words?

A franchise business is where you run your own outlet using another company's brand name and system by paying a fee and ongoing royalty.

2. How does a franchise work in India?

The brand gives you rights, training and SOP. You invest, set up and operate as per standards and pay royalty on sales.

3. What are the types of franchise in India?

FOFO, FOCO, master franchise and multi-unit franchise are the most common models in India.

4. What is the cost of a franchise in India?

40% of franchisees invest Rs 5-10 lakh for small formats, while larger formats can go from Rs 20 lakh to Rs 1 crore+. Cost includes franchise fee, setup and working capital.

5. What is new in franchise industry?

Tier 2/3 growth, low-capex formats, AI for operations, AI agents for UPI payments with registry, proposed UPI MDR, and omnichannel models.

6. What is AI agentic payment on UPI?

It is a framework where NPCI is reportedly building a registry to verify AI agents making payments on UPI, allowing small payments within limits you set, with audit trails.

7. Will UPI payments cost extra for customers from Oct 2026?*

No. As per reports, consumers continue to pay free. MDR is within the merchant payment ecosystem.

8. How to verify a franchisor?

Verify CIN on MCA portal, GSTIN on GST portal, visit head office and live outlets, and speak to existing owners.

9. Is franchise profitable?

It can be, but profit depends on location, rent, staff cost, ticket size, repeat rate and your management.

10. What documents should a franchisor share?

Company proof, GSTIN, sample agreement, fee schedule, outlet list, training plan and disclosure summary.

Written By: Gouri Ghosh, Franchisebazar Editorial Team — Updated September 2026

Disclaimer: The brands mentioned in this blog are the recommendations provided by the author. FranchiseBAZAR does not claim to work with these brands / represent them / or are associated with them in any manner. Investors and prospective franchisees are to do their own due diligence before investing in any franchise business at their own risk and discretion. FranchiseBAZAR or its Directors disclaim any liability or risks arising out of any transactions that may take place due to the information provided in this blog.