§ Profitability
Operating leverage
Glossary version 2026-07-12.v1 · reviewed July 12, 2026
The tendency for operating profit to change faster than revenue because part of the cost base is fixed. It helps profits in expansion but can magnify declines when revenue falls.
Operating leverage arises when fixed costs grow more slowly than revenue, allowing incremental sales to produce a larger percentage increase in operating profit. The effect works in reverse during a slowdown because fixed expenses remain while revenue falls. Reports look for operating leverage in the relationship between revenue growth, gross margin, operating expenses, and operating margin.