Profit margin calculator

Profitability is one of the key metrics that define the success of a company. Business owners need to keep a sharp eye on their sales revenue and find creative ways to keep generating profit year after year. As your business grows, a firm grasp of your profit margins—and a reliable profit margin calculator—can give you the valuable data you need to make informed financial decisions.

Our guide breaks down how profit margins work, provides formulas for different types of margins, and details six ways to increase yours. Use our free gross profit margin calculator above to help you quickly crunch your numbers.

More in this guide:

• What is profit margin?
• How to calculate profit margin
• 6 ways to increase your profit margin
• Frequently asked questions
• Boost your profit margin with Zendesk

What is profit margin?

Profit margin is the percentage of income remaining after costs are deducted from sales revenue.

Businesses with high profit margins are better at converting their revenue into profit. But to fully understand profit margin, you need to be familiar with a few key financial terms, like:

• Cost: The amount of money spent to create your products or services.
• Margin: The difference between the selling price of your products or services and production costs.
• Revenue: The total amount of income your business generates.
• Profit: The difference between the amount earned and spent to produce your goods.

These terms all intertwine to help you get a complete picture of your financial stability.

How to calculate profit margin

You can calculate three different types of profit margins: gross, operating, and net profit. Below we dive deeper into each.

Gross profit margin formula

Gross profit margin is the profit percentage after deducting the cost of goods sold (COGS) from net sales. Our calculator above determines this type of profit margin.

Operating profit margin formula

Operating profit margin is the ratio a company uses to show its profitability compared to its core operations. First, you need to determine operating income—and you can do so by subtracting operating expenses like COGS and wages from gross income. From there, you can plug that number into the formula below to find the operating profit margin.

Net profit margin formula

Net profit margin measures how much net income you generate from your total revenue. First, you must calculate your net profit by subtracting COGS, operating expenses, interest, and taxes from your total revenue. You may then use the difference as the net profit in the formula below.

6 ways to increase your profit margin

Follow our tips and best practices below to increase your profit margin and boost your bottom line.

1. Embrace AI to streamline operations

With AI, teams can provide better customer experiences (CX), streamline support, and identify areas of improvement. In fact, according to the Zendesk Customer Experience Trends Report 2025, 90 percent of CX Trendsetters report positive ROI on AI tools for agents. So, if you’re looking to optimize your profit margins, AI is a great place to start.

For example, businesses can use AI agents to upgrade their customer interactions. These autonomous bots can handle even the most complex customer queries from start to finish, boosting your customer retention and empowering you to optimize your labor budget. Teams can also use AI-powered quality assurance (QA) tools like Zendesk QA to highlight bottlenecks in their operations and identify customer churn risks and outliers.

2. Reduce operating costs

A great way to quickly increase profit margin is to reduce operating costs and expenses. To do this effectively, conduct an audit to identify money-saving opportunities like:

• Optimizing labor budgets or staffing costs

• Spotting opportunities to incorporate AI or use automation

• Eliminating expensive or unused office space

• Negotiating vendor discounts

However, before slashing expenses, you need to create an effective sales plan to make sure your budget cuts don’t hurt your business in the long run.

3. Build customer loyalty

Retaining customers and building customer loyalty are reliable ways to increase profit margins. You can create a dedicated customer base by providing excellent service, personalizing customer interactions, and offering perks like loyalty programs.

To see this in action, look no further than Grove. The online cleaning and wellness brand used Zendesk AI to build loyalty and help support agents personalize every interaction, leading to a 95 percent customer satisfaction (CSAT) score.

4. Increase average order value (AOV)

Another effective way to increase profit margin is to increase your average order value (AOV). Simply put, you want your customer to spend more per transaction.

Here are some ways to increase your AOV:

• Incentivize order minimums with discounts or free shipping.

• Offer product bundles or packages.

• Add recommendations or “customers also bought” prompts to online carts.

• Empower AI agents to give customers personalized product recommendations and suggest upsell and cross-sell opportunities.

You can also increase AOV by finding higher-quality customers. Tools like sales CRMs can optimize your sales funnel and help you connect with consumers willing to pay more.

5. Prioritize high-margin products

To increase revenue and profit margins, identify which products or services sell the best and have the most potential to deliver the most sales volume and profit for your business. Prioritize these high-margin products to maximize your revenue.

For services, consider your high-margin versus low-margin customers and focus more on the former. Dedicate your resources to these high-value clients to increase profitability.

6. Adjust your pricing

The most obvious solution may be the most effective. Some small businesses avoid raising prices, fearing that customers will jump ship. However, if you provide a quality product with great customer service, a bump in your pricing will rarely deter customers from making a purchase.

Another option is to work backward and start with your break-even point. Once you know how much you need to make on each product to stay afloat, you can adjust your pricing to achieve your desired profit margin.

Frequently asked questions

Boost your profit margin with Zendesk

A healthy profit margin can lead to a healthy business, but only if you take the right steps. You can’t just rest when you hit your desired margin. You must also look forward to consistently building customer loyalty, managing expenses, and investing in new technologies. With Zendesk, you can achieve all of that and more with our solutions like AI-powered QA and Zendesk AI agents.

Discover how Zendesk customer service software can help you boost your profits and connect with your customers.