Chai Business Profit Margin: Concentrate, Blends and Cups

A chai business's margin is high on everything it sells by the cup or the bottle, because tea, spices and sugar cost little; what decides the margin is the bottle, the brewing time and the channel. In the example below, a 32-ounce bottle of chai concentrate has $1.70 of tea, spices and sugar in it, 95 cents of glass and label, and $1.50 of brewing and bottling. Sold direct for $14, it earns 67%; to a grocer for $8.50, 46%; and a gallon jug for a café earns 51%. A latte at a market stall earns 70%. Over a month, five products bring $13,920 of sales and $8,405 of gross profit, and $6,910 is left after the fixed costs. Below is a bottle costed, the margins by channel, a month's numbers, and where the margin leaks.

The short version

• Cost a bottle: tea, spices, sugar, the bottle and label, the brewing and bottling time, the fees.
• Concentrate is mostly packaging and time; the ingredients are the smallest part.
• Direct bottles earn about 67% in the example, grocers 46%, cafés 51%.
• Cups at a stall earn the most a dollar, and sell the bottles.
• Concentrate is kept cold and has a short life; date every batch.
• The margin leaks through bottles that pass their date and spices bought at retail.
• TaroStack costs every batch, dates every bottle and shows what's close to its date. More below.

A bottle, costed

Patapsco Chai Co., a made-up chai maker in Baltimore, Maryland, I use in these examples, brews chai concentrate in 5-gallon batches, 20 bottles at a time:

The ingredients are the smallest of the three main costs. Cardamom is the dearest spice by far; buying it whole by the pound from a spice importer costs far less than jars at a grocery.

Margins by channel

The grocer bottle carries 40 cents of cold delivery. A café's gallon makes about 21 lattes for it, which is why cafés buy by the gallon and pay a good price for it. The latte uses 6 ounces of concentrate and 6 of milk, and the stall time is counted at 1.5 minutes a cup. What a market stall costs is in cost to sell at a farmers market.

A month's numbers

Fixed costs are $1,495 a month: a shared commercial kitchen ($800), market fees ($200), insurance ($70), the website ($40), ads ($200), the cold delivery run ($150) and software ($35). That leaves $6,910 a month, a 50% net margin, with the brewing and stall hours paid at $20. The stall's lattes bring almost as much as the direct bottles, and they're how people first taste the chai.

What a good chai margin is

With labor counted, 60% or more direct and 40% or more to grocers leaves room for the bottles that don't sell before their date. Because the ingredients are cheap, a chai business's margin is mostly decided by its packaging and its channels. Margins in food and drink in general are in good profit margin for a food product, and selling through distributors in distributor margin.

Where the margin leaks

Bottles past their date. A refrigerated concentrate keeps for a few weeks; ten bottles left at a co-op past their date are $45 of cost with nothing against them.

Spices bought small. Cardamom and cinnamon bought in retail jars cost several times what they cost by the pound.

Glass. Breakage and the bottle itself are the second-biggest cost; a bigger bottle, or returnable café jugs, help.

Free tasters. Sample cups at the stall are marketing; count them, or they hide in the margin.

Get the calculator

Download the chai profit margin calculator. One line for each product and where it's sold: the price, the tea, spices and sugar, packaging, labor and fees as a share of the price; the cost, gross profit, margin, markup and the price a target margin needs fill in. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.

Where this stops working

The sheet uses the costs you type in. Concentrate brewed on Monday has a different date from Friday's, bottles sit at grocers in different numbers, and spice prices change by the shipment.

How TaroStack does it

TaroStack costs every batch, dates every bottle and shows what's close to its date.

Batches costed and dated. Each batch is a recipe of tea, spices and sugar, so it takes them off stock, is costed from what they cost, and gets a lot and a best-by date, recorded automatically.

What's close to its date. Lots close to their date raise an alert, a forecast shows what will expire unsold, and picking lists put the earliest dates first.

Margins by customer. Each grocer's and café's order is a sales order, and margins are reported by product and by customer.

Recipes, batches, lots and margins are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

What is the profit margin on chai?

In the example, 67% on a bottle of concentrate sold direct, 46% to a grocer, 51% on a café gallon and 70% on a latte at a market stall, with labor counted.

Is a chai business profitable?

It can be. In the example, $13,920 of monthly sales leave $6,910 after fixed costs, with every hour paid at $20.

How much does it cost to make chai concentrate?

In the example, $1.70 of tea, spices and sugar for 32 ounces, plus 95 cents for the bottle and $1.50 of brewing time.

Should a chai business sell to cafés?

Yes, by the gallon: in the example a café jug earns 51% and makes about 21 lattes for the café, so both sides do well.