Short Description
Operating leverage refers to how a company’s fixed and variable costs interact to affect profitability as revenue grows. Businesses with high operating leverage have a cost structure dominated by fixed costs — meaning that once those fixed costs are covered, additional revenue can translate into disproportionately higher profits.
In simple terms:
High operating leverage = higher profit margins as revenue scales.
This concept is especially important in capital-intensive or software-driven models, where costs don’t rise linearly with revenue.