What is Operating leverage?
How much profit swings when sales change, because of fixed costs.
Businesses with mostly fixed costs have high operating leverage: a small rise in sales lifts profit a lot, and a small fall can wipe it out.
Formula
Degree of operating leverage = Contribution ÷ Operating profit
Example
With $1,000 of contribution and $200 of profit, a 10% rise in sales raises profit by 50% (leverage of 5).
Why it matters
Hotels and airlines have high operating leverage, which makes them very sensitive to demand.
🏨 See it in a hotel game
Run a hotel in PlayLobbyboss and watch how operating leverage changes with every decision you make.
Play free — no download