GlossaryOperating leverage

Operating leverage

Operating leverage describes how much a company's changes in response to a change in , driven by the mix of fixed and variable costs in its cost structure. A company with high fixed costs and low variable costs has high operating leverage, meaning profit can grow much faster than once fixed costs are covered.

This is different from , which comes from debt rather than cost structure. A software company with high fixed engineering costs but low costs to serve each additional customer is a classic example of high operating leverage, small can translate into much larger gains.