Operating Leverage Calculator

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Operating Leverage measures how sensitive a company’s operating income is to changes in revenue, driven by the proportion of fixed versus variable costs. More info →

Input

Enter revenue and cost information to calculate operating leverage.

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How This Calculator Works

Operating leverage shows how much operating profit moves when sales move. A business with high fixed costs sees profit jump when sales rise, and fall sharply when sales drop. The Degree of Operating Leverage (DOL) puts a number on that.

The Formulas

Contribution = Revenue − Variable Cost · EBIT = Contribution − Fixed Costs
DOL = Contribution ÷ EBIT

Contribution Margin = Contribution ÷ Revenue × 100

What Each Input Does

Revenue: Total sales for the period.
Variable Cost: Total costs that rise and fall with sales.
Fixed Operating Costs: Costs that stay the same whatever the sales. The higher they are, the higher the DOL.

Step by Step

Contribution = revenue − variable cost.
EBIT = contribution − fixed costs. EBIT cannot be zero.
DOL = contribution ÷ EBIT, and the contribution margin is worked out.

Reading the Result

DOL of 2.67 – a 1% rise in sales lifts EBIT by about 2.67%, and a 1% fall cuts it by the same.

High DOL – profits are very sensitive to sales.

If variable cost is higher than revenue, the result is shown as not meaningful.

Quick Example

Revenue 1,000,000, variable cost 600,000, fixed costs 250,000. Contribution is 400,000 (40% margin) and EBIT is 150,000, so DOL = 400,000 ÷ 150,000 = 2.67.