How to Evaluate a Franchise Before Investing in India

10 Key Questions Every Smart Investor Must Ask

The Day Ramesh Lost 18 Lakhs — and What He Should Have Asked First

Ramesh Gupta runs a small textile shop in Nagpur. Three years ago, a franchise salesperson walked into his life with a glossy brochure, big promises, and a ‘limited-time’ opportunity in a well-known food brand. Ramesh was excited. He saw the TV ads, he liked the brand, and his brother-in-law said ‘brand hai toh bik jaayega.’ He signed the agreement in 11 days. Paid ₹18 lakh as franchise fee. Within 14 months, his outlet shut down.

The sad part? Ramesh is not alone. Every month, across Tier 2 and Tier 3 cities in India — Nagpur, Ludhiana, Coimbatore, Jaipur, Surat — investors sign franchise agreements with emotion, not calculation. They trust the brand name. They skip the hard questions. And they pay a heavy price.

I have been working as a franchise consultant for over a decade. I have seen the deals that flew and the deals that crashed. And in my experience, the investors who succeed are not the richest ones. They are the ones who asked the right questions before signing anything.

So here they are. The 10 questions you must ask before you invest a single rupee in any franchise in India.

Question 1: How Many Franchisees Have Exited — and why?

Every franchisor will show you their success stories. That is their job. Your job is to find the failures. Ask them directly: ‘How many franchise outlets have closed in the last 3 years, and what was the reason?’

A healthy brand with 200 outlets may have 5 to 8 closures — that is normal. But if a brand with 50 outlets has 15 closures, that is a red flag you cannot ignore. Some franchisors will get defensive. That defensiveness itself is your answer.

Pro tip: Ask for the contact numbers of at least 3 existing franchisees — not the ones they suggest, but the ones in cities similar to yours. Call them directly. Ask real questions. Real franchisees will tell you the truth.

Question 2: What Is the Complete Investment — Including the Hidden Costs?

In India, the franchise fee mentioned in the brochure is often just the beginning. A brand that says ‘₹5 lakh franchise fee’ may actually cost you ₹25 lakh once you add up everything. Here is what you must account for:

• Franchise fee (one-time)
• Interior fit-out and branding costs
• Equipment, machinery, and furniture
• Security deposit for the outlet space
• Initial inventory and raw material stock
• Staff recruitment and training
• Working capital for 6 to 9 months (often ignored!)
• Technology, software, and POS system costs
• Marketing contribution fees

I worked with a client in Lucknow who was told the total investment for a QSR (Quick Service Restaurant) franchise was ₹12 lakh. When we itemized everything, the actual cost was ₹31 lakh. He almost signed. We caught it in time.

Rule of thumb: Always add 20 to 30% buffer over whatever the franchisor quotes. And always ask for a written, itemized cost breakdown — not a verbal promise.

Question 3: What Is the Realistic Breakeven Timeline?

Any franchisor worth trusting will give you a clear answer. If they say ‘You will recover your investment in 6 months!’ — be suspicious. For most honest businesses in India, the breakeven period is 18 to 36 months, depending on the sector.

Ask them to show you the breakeven calculation on paper. Monthly revenue assumption, average ticket size, footfall estimate, royalty deductions, rent, staff cost, electricity — everything. If the math does not add up, the business will not add up either.

Question 4: What Territory Rights Will You Get — in Writing?

This is one of the most common traps in Indian franchise deals. You open an outlet in Indore, invest ₹20 lakh, build a customer base — and six months later, the franchisor opens another outlet 2 kilometres from yours. Your sales drop 40%. You have no legal protection.

Always demand a clearly defined exclusive territory in the franchise agreement. Get it in writing. If the agreement says ‘non-exclusive territory’ or ‘the company reserves the right to open additional outlets’ — negotiate hard or walk away.

What to ask: ‘Do I get exclusive territory rights? What is the minimum radius of protection? Is this written in the agreement?’

Question 5: What Support Will You Actually Receive After Launch?

Every franchise pitch sounds amazing on day one. Training! Marketing support! Dedicated relationship manager! But what happens in month 4 when your sales are down and you call their helpline and nobody picks up?

Ask them to describe the support structure in detail: How many days of initial training? Is there on-site support at launch? Is there a dedicated account manager or just a WhatsApp group? How quickly do they respond to complaints? Ask for the SLA (service level agreement) in writing.

A brand that cannot clearly explain their post-launch support is a brand that has not built one.

Question 6: What Are the Royalty Fees and Marketing Levies?

Most franchise agreements in India include royalty fees — typically 4% to 10% of monthly revenue — plus a marketing or brand development fee of 1% to 3%. This means that even before you pay rent, staff, or electricity, 5 to 13% of your top-line is already gone.

Do the math. If your monthly revenue is ₹4 lakh and royalty plus marketing levy is 8%, that is ₹32,000 every month going back to the franchisor — whether you are profitable or not.

Critical question: ‘Is the royalty calculated on gross revenue or net revenue? What happens in months when I make a loss — do I still owe royalty?’

Question 7: What Does the Exit Clause Look Like?

Nobody buys a franchise thinking they will exit. But smart investors plan for it. The exit clause in an Indian franchise agreement is often buried in 40 pages of fine print — and it can trap you for 5 to 10 years.

Key questions to ask: What is the lock-in period? What are the penalties for early exit? Can you sell the franchise to someone else? Under what conditions can the franchisor terminate your agreement? Get a lawyer — ideally one with franchise law experience — to review the agreement before you sign. Spending ₹15,000 on a lawyer can save you ₹15 lakh.

Question 8: Is the Brand’s Core Business Actually Working?

Some franchisors are in the business of selling franchises — not actually running a business. They make money from your franchise fee, not from building a sustainable brand. This is more common in India than people think.

Ask: How old is the brand? Do they have company-owned outlets, or only franchisees? If they have no company-owned outlet themselves, ask why. Look up their brand on Google, Zomato, Just Dial, or whatever platform is relevant. Read the reviews — not the curated ones on their website, but the real ones online.

Question 9: What Are the Supply Chain Terms?

Many franchise agreements in India include a mandatory supply clause — you must buy raw material, packaging, or products exclusively from the franchisor or their designated vendors. This is how many franchisors make additional money beyond royalties.

Ask: Are you locked into their supply chain? What are the prices compared to the open market? Can prices change without your approval? If a food franchise is charging you ₹180 per kg for something you can buy for ₹120 per kg in the local market, that ₹60 per kg difference is silently eating your margins every single day.

Question 10: Can You Speak to 5 Franchisees — Without the Franchisor Present?

This is the most powerful due diligence step — and the most revealing. Ask the franchisor for a list of 10 franchisees. Pick 5 at random. Call them yourself. Ask them:

• Are you making the money you were promised?
• What was your actual breakeven time?
• Has the franchisor kept all their promises?
• What would you do differently?
• Would you invest again, knowing what you know now?

If the franchisor refuses to share franchisee contacts, or insists on being present for the calls — that is your answer. A confident, ethical brand encourages you to speak freely with their network.

Your Pre-Investment Franchise Evaluation Checklist

Before you sign anything, make sure you have done all of the following:

• Got the complete itemized cost breakdown in writing
• Verified franchise exit/closure numbers independently
• Spoken to at least 5 existing franchisees on your own
• Confirmed exclusive territory rights are in the agreement
• Calculated breakeven on paper with real numbers
• Reviewed royalty, levy, and supply chain margin impact
• Had a franchise lawyer review the agreement
• Checked the brand’s online presence and customer reviews
• Understood the exit clause and lock-in period completely
• Set aside 6-9 months of working capital beyond investment

Real Story: How Sunita from Jaipur Saved ₹24 Lakh

Sunita Agarwal, a homemaker turned entrepreneur from Jaipur, came to me in 2022 with stars in her eyes. She wanted to invest in a popular salon franchise — franchise fee: ₹8 lakh, promised ROI: 24 months.

We went through all 10 questions together. When we dug into the numbers, the actual setup cost was ₹32 lakh (not ₹8 lakh as advertised). The royalty was 12% of gross revenue. The exclusive territory was not mentioned in the agreement. And when we called 4 existing franchisees, 2 of them said they were struggling and one had already started looking for an exit.

Sunita did not invest. Six months later, she found a different brand — smaller, less glamorous, but transparent. Total investment: ₹14 lakh. Breakeven: 22 months. Today, she is profitable, with a second outlet planned for 2025.

Frequently Asked Questions

Q1. Is franchise business safe in India?

It can be — if you do proper due diligence. The risk is not in the franchise model itself. The risk is in signing without asking the right questions. A well-researched franchise investment in India can give you steady returns with lower risk than starting from scratch.

Q2. How much money do I need to start a franchise in India?

Franchise investments in India range from as low as ₹2 lakh (small service-based franchises) to ₹1 crore or more (premium food or retail brands). For a solid, mid-level franchise, expect to invest ₹15 to ₹40 lakh all-in, including working capital. Never stretch beyond what you can afford to lose.

Q3. Which franchise is best for Tier 2 cities in India?

Education franchises, healthcare clinics, pharmacy chains, courier and logistics services, and affordable food brands tend to do well in Tier 2 and Tier 3 cities. The key is to pick a category that serves genuine daily needs in your local market — not lifestyle brands built for metro audiences.

Q4. How do I check if a franchise is legitimate?

Start with the Ministry of Corporate Affairs (MCA) website to verify the company’s registration. Check if they have a physical office, a real team, and a track record. Read online reviews. Talk to existing franchisees directly. A legitimate franchisor will encourage your research — not rush you into signing.

Q5. What is a fair royalty fee in a franchise agreement?

A fair royalty fee in India typically ranges from 4% to 8% of gross monthly revenue, depending on the sector. Combined with marketing levies, total fees should ideally stay under 10%. Anything above 12% to 15% significantly impacts your profitability and deserves serious scrutiny.

Q6. Can I negotiate a franchise agreement in India?

Yes — more than most people think. Territory rights, royalty structure, initial training period, marketing support commitments, and even the lock-in period are often negotiable. Never treat the first draft of a franchise agreement as final. A brand that refuses all negotiation on key commercial terms deserves a second look.

Q7. How long does it take to break even on a franchise in India?

For most honest businesses in India, realistically plan for 18 to 36 months to recover your investment. Be very cautious of any franchisor claiming breakeven within 6 to 12 months — those promises rarely survive contact with real market conditions.

Final Word: Excitement Is Good. Homework Is Better.

The franchise model, done right, is one of the most sensible ways to start a business in India today. You get a proven system, a recognized brand, and ongoing support. These things have real value.

But the franchise industry in India also has its share of operators who are in the business of selling hope, not building businesses. Your job as an investor is to separate the two.

Ask hard questions. Demand written answers. Do the math yourself. Talk to real people who have walked this road before you. Take your time. Any franchisor who pressures you to sign in 48 hours does not have your best interests at heart.

Remember Ramesh from Nagpur. He lost ₹18 lakh in 14 months because nobody told him to ask these questions. You already know better.

Ready to Evaluate a Franchise the Right Way?

If you are seriously considering a franchise investment in India and want an independent, honest evaluation — not a sales pitch — connect with a certified franchise consultant who has no incentive to push you toward any particular brand.

Before you invest, get clarity. Before you sign, get a second opinion. And before you hand over your hard-earned money, make sure every one of these 10 questions has been answered — clearly, completely, and in writing.

Share this article with anyone you know who is thinking about buying a franchise in India. It may be the most useful thing they read before making that decision.

Written in the spirit of honest franchise consulting. No brand promotions. No affiliate links. Just ground-level truth.