Operating Leverage

The degree to which a business's profit grows faster than its revenue as volume increases, driven by a high proportion of fixed costs that do not rise proportionally with sales.

High operating leverage amplifies both gains and losses. In a growing business it is a superpower: doubling revenue with the same fixed base can triple or quadruple profit. In a declining business, the same fixed costs become crushing.

A founder's SaaS business has £5,000 in fixed monthly costs for hosting, tools, and a part-time assistant. She adds 50 new subscribers at £40 each with almost no marginal cost. The £2,000 in new revenue flows almost entirely to profit, demonstrating strong operating leverage.