operating leverage

Definition

The percentage of fixed costs in a company's cost structure. Generally, the higher the operating leverage, the more a company's income is affected by fluctuation in sales volume. The higher income vs. sales ratio results from a smaller portion of variable costs, which means the company does not have to pay as much additional money for each unit produced or sold. The more significant the volume of sales, the more beneficial the investment in fixed costs becomes.

Use operating leverage in a sentence

You need to make sure that you always have the operating leverage so that you are not caught off guard.

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Our operating leverage was high and I knew that meant we would be impacted by the fluctuation in sales volume.

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Given the company's operating leverage, it was no surprise when they boosted production at the last minute, since the company was making so many sales that quarter.

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degree of operating leverage (DOL) leverage