What is operating leverage
What is meant by the phrase "capturing operating leverage"?
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Growing revenue faster than your costs, namely fixed opex, resulting in higher margins
In high operating leverage business fixed costs don’t move much.
Operating leverage is a double edged sword. Great when revenue is growing but bad when revenue is reducing.
Why is it bad when revenues aren’t growing as fast?
Think of marginal analysis. When a high operating leverage business wins or loses a customer.
When revenue declines, a greater proportion of the contribution margin negatively hits EBITDA.
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