Result
Operating leverage
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Contribution margin = (price − variable cost per unit) × sales volume. Operating profit = contribution margin − fixed costs. Degree of Operating Leverage (DOL) = contribution margin ÷ operating profit.
DOL shows how much a change in revenue gets amplified into a change in operating profit: at DOL = 3, a 10% increase in sales yields roughly a 30% increase in operating profit — and just as sharply, a 10% drop yields roughly a 30% drop in profit. The reason is that fixed costs don't move with volume, so almost all the extra revenue from each unit sold past the break-even point flows straight into profit.
High operating leverage isn't inherently bad — it's a deliberate choice of cost structure. A business with a high share of fixed costs (large-scale manufacturing, say) gains more from rising sales but also loses more in a downturn than one built mostly on variable costs. DOL measures that risk specifically, not efficiency on its own.