What You Need to Know About Franchise Costs in India

on Feb 22, 2023 | 159177 views

By Shifa Qaiyum

The big question when thinking of buying a franchise is: What is the cost of starting a franchise business in India? However, there is no definite answer to this question because every industry has different costs to open a franchise although many requirements are similar.

Besides the initial investment, you need to pay a franchise fee to the franchisor, and you also need to be responsible for all expenses for your location, which includes installations, furniture, and different types of equipment.

Other start-up costs include contractor fees, professional fees, inventory, and signage. You need to ensure you have enough working capital to be afloat in the business when opening a franchise.

Everything to know about the Franchise Cost in India

The franchise cost in India differs from one sector to another. Most of the franchises require an initial investment of around INR 15-30 lakhs. Here are some franchise costs:

Retail:

Sector

Investment (in INR lakhs)

Area (in sq. ft.)

Apparel

15-20

1,200-1,800

Consumer durable

23-26

1,000-1,800

Jewellery

250-350

1,000-1,500

Furniture and Furnishing

40-45

600-1,200

 

Music, books, and stationery

12-15

600-800

Food and groceries

20-25

1,000-1,500

 

Food and beverages:

Sector

Investment (in INR lakhs)

Area (in sq. ft.)

QSR

30-40

500-1,000

FSR

25-30

1,000-1,500

Cafes/bars

30-40

500-1,000

Kiosks

10-15

250-300

 

Beauty and Wellness:

Sector

Investment (in INR lakhs)

Area (in sq. ft.)

Spa

40-50

1,400-1,600

Salon

40-45

1,400-1,600

Fitness

70-80

1,500-2,000

 

Education:

Sector

Investment (in INR lakhs)

Area (in sq. ft.)

Preschool

10-15

1,200-3,000

IT training

15-20

1,200-1,600

 

What are the basic expenses to open a franchise?

 There are the basic expenses to open a franchise:

  • Legal and Accounting fees- You should consult a franchise expert before buying a franchise. They will help you with Franchise Disclosure Document and the franchise agreement and ensures that you are aware of all the aspects of buying a franchise altogether.

You also need to maintain a record of all your expenses. Hiring a qualified accountant will help you to keep a record of your costs and the chart of accounts which the franchisor provides you with. They will also help you decide the amount of working capital that is required for the franchise’s future.

  • Working Capital- The amount that is available to run the franchise is known as Working Capital. Depending upon your business, it assures that your working capital makes up for a certain period, till your business is in complete flow.

You should do thorough research on your specific market to get an estimate of the amount required to start the business.

  • Franchise fee- The franchise fee is the license to own and run the franchise business. Most of the franchisee’s fee ranges from ₹3-10 lakhs however, home-based or mobile franchises can be operated on a small scale.

The franchise fee usually covers the training, franchise support, and also location selection. Sometimes the facilities supplied by the franchisor are included in the franchise fee.

  • Build-out costs- After your location is approved by the franchisor, they can help you tell your approximate build-out costs. There are various other start-up costs to consider which include contractor fees, landscaping, security, decor packaging, deposits, and insurance, professional fees for architectural drawings, and zoning consent. You also need furnishings, fixtures, signage, and equipment to run the business. and equipment.
  • Supplies- A franchise needs to have proper supplies to run the business. The franchisor should provide you with a specific list required to run the franchise.
  • Inventory- You should stock your inventory to avoid any problems in the future if you are in a retail franchise selling a specific product. You should stock up on the inventory according to your customer’s demands.
  • Travel and living expenses while training- You are provided with routine training by the franchisor. One more employee needs to be trained beside you to avoid complications in the future. Sometimes the franchisee is responsible for training-related travel and living expense.

Training can last for a long time and some training can be done through webinars or classes. The franchise fee might cover the training expenses in some cases.

See more: The fees to pay the franchisor.

 

What are the most profitable franchise businesses in India?

India has a booming franchise business in various sectors because of its large population. Most of the franchises are said to be lucrative in the long term. The nine most profitable franchise businesses in India are

  • Tumbledry- Laundry is a dormant problem which has been looking for a solution for a very long time. Tumbledry is trying to solve this problem by opening live laundry stores providing the best services.

Tumbledry’s store functioning is connected to the customer’s mobile app. They offer dry cleaning, shoe cleaning, bag cleaning, bag repairing, shoe repairing and carpet cleaning services along with laundry services.

Initial investment: INR 23-25 lakhs

Area required: 250 to 300 sq. ft.

  • Bikanervala- It was one of the largest vegetarian restaurants in India known for its sweets and snacks. Bikanervala has more than 100 outlets in India offering a wide variety of snacks, sweets and namkeen.

Initial investment: INR 7-12 lakhs

Area required: 500 to 1,000 sq. ft.

  • Amul- Amul is one of the most successful and reputable brands in India. They have their products in the market with a large variety of products which include milk, cheese, ice creams, butter, chocolates, etc.

Initial investment: INR 5-10 lakhs

Area required: 300 to 700 sq. Ft.

  • Domino’s Pizza- Domino’s pizza is one of the most well-known pizza franchises in India. It has more than 1,000 outlets in the country. They are also one of the firsts to have their pizza delivery service.

Initial investment: INR 10-12 lakhs

Area required: 500 to 800 sq. Ft.

  • Café Coffee Day- CCD is the finest coffee chain in India and the largest Arabica beans producer. The cafe sells delicious coffee, tea, desserts, sandwiches and much more. The company has more than 1,700 outlets across India.

Initial investment: INR 15-20 lakhs

Area required: 500 to 1,000 sq. ft.

  • Subway- Subway is a fast-food restaurant chain with more than 400 outlets in India. They became popular in the country for selling healthier alternatives to their famous submarine sandwiches also.

Initial investment: INR 6-11 lakhs

Area required: 500-700 sq. ft.

  • Baskin Robbins- It is one of the largest ice cream chains. Their products are available in both standalone stores and supermarkets.

Initial investment: INR 10-15 lakhs

Area required: 250 to 500 sq. ft.

  • Naturals Salon- They are one of the leading hair and beauty salon franchises in India and have more than 700 outlets in India. They offer a variety of services like skin, hair and nail care.

Initial investment: INR 10-12 lakhs

Area required: 500 to 1,000 sq. ft.

  • Giani’s ice cream- Giani’s is a premium ice cream brand known for its variety of flavours and diverse menu. Their products are 100% vegetarian.

Initial investment: INR 15-20 lakhs

Area required: 250-500 sq. ft.

 

Frequently Asked Questions

1. What is a franchise fee?

Ans. The franchise fee is the amount that the franchisee has to pay the franchisor to use the company’s trademark and gain benefits from their advertising framework. Startup costs, training, market esteem, and most likely ROI add to the franchise fee.

 

2. Are franchise fees refundable?

Ans. No, franchise fees are mostly non-refundable. The clause signed by both, the franchisor and the franchisee, usually mentions whether the franchisee fee can be refunded after it is paid the first time.

 

3. What is the working capital in a franchise business?

Ans. Working capital refers to the money required to pay royalty fees, monthly rent, utility bills, ongoing supplies and staff costs.

When you buy a franchise, you must have a cash flow to determine how much money you need to make and by what time you can make the money to run the business. You need enough money in your account to cover the expenses when you don’t make enough expenses.

 

4. Why do you need working capital?

Ans. Working capital is very important when you invest in a franchise business. One of the most common reasons for a business failure is miscalculations of your finances. If you have enough working capital, it can help you keep your company afloat even if you are making losses.

 

What are the recurring costs of owning a franchise business?

Ans. Even after paying an initial investment to the franchisor to start up the business, you have some other recurring costs. These include marketing, utility bills like electricity, rent or lease payment, training provided for staff, franchise fees or royalties, marketing and advertising fees, and other operational costs.

 

Conclusion

In the end, you must always keep in mind that you don’t have investment costs only when buying a franchise business. You have other recurring costs that need to be taken care of. You must have enough working capital on you to keep your business afloat. Sometimes you don’t get profit from your business immediately and the working capital helps in your business.

The cost of buying a franchise varies from one sector to another. You also need to pay a franchise fee to the franchisor which ranges from INR 5 to 10 lakhs some franchise charge less than INR 2 lakhs but they are mostly small-scale or home-based businesses.

This concludes the article and we hope that you enjoyed reading about the franchise cost in India. Do share your valuable thoughts in the comments. Thank you for reading.

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