What is Operating Leverage?

A definition of Operating Leverage

“Operating leverage refers to the proportion of fixed costs in a company’s cost structure. A high degree of operating leverage indicates higher potential profitability but also higher risk, as earnings are more sensitive to changes in sales volume.”

Operating Leverage in Business Glossary - What is an Operating Leverage?

Business Glossary > What is Operating Leverage?


Examples of Operating Leverage in a Sentence:

High operating leverage can lead to substantial profit increases with sales growth.

A company with low operating leverage often has fewer fixed expenses.

Operating leverage affects how revenue changes impact a company’s net income.

Why is Operating Leverage Important in Business?

Understanding operating leverage is crucial for businesses to evaluate the risk and potential returns of their operations. It helps in decision-making regarding cost structure and can impact profitability during varying sales periods.

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Associated Terms

Here are some associated business terms and synonyms for “Operating Leverage”:

  • Leverage
  • Fixed Cost Leverage
  • Contribution Leverage

Amazon’s Operating Leverage

Amazon benefits from a high degree of operating leverage due to its extensive infrastructure. The company’s ability to spread fixed costs over a large volume of sales contributes to improved profitability as sales grow.

Final Notes on Operating Leverage

When considering operating leverage, assess the balance between fixed and variable costs. This balance will directly affect how well a company can manage profits in response to changes in revenue.


This has been a definition of Operating Leverage meaning.

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