Operating Leverage

Definitions

1. The ability of a business to grow revenue faster than operating costs, improving margins as scale increases. Software investors care deeply about operating leverage because it signals that growth can eventually become profitable.

   In plain English: When revenue grows faster than the costs needed to support it.

   Example: "The company finally showed operating leverage once revenue scaled without matching headcount growth."

Related Terms

• Cap Table
• Contribution Margin
• Cost of Goods Sold
• Cost of Revenue
• Gross Margin
• Operating Margin
• Profit Margin
• Variable Cost