# What is my operating leverage?

Computes the degree of operating leverage (DOL): contribution margin divided by operating income, or the percent change in operating income over the percent change in sales.

- Page: https://www.acalculator.org/finance/operating-leverage-calculator
- JSON spec: https://www.acalculator.org/finance/operating-leverage-calculator.json
- Version: 430df52fb219

## Default answer

Example with the default inputs (Start from Sales and costs, Sales $250,000.00, Variable costs $102,000.00, Fixed costs $63,000.00, Change in sales 10%): The degree of operating leverage is 1.74: a 1% change in sales changes operating income by 1.74%.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| from | Start from | Sales and costs for one period, or sales and operating income for two periods. |
| sales | Sales | Sales revenue for the period. Must be above $0. |
| vc | Variable costs | Costs that rise and fall with sales, such as materials and commissions. |
| fc | Fixed costs | Costs that stay the same as sales change, such as rent and salaries. |
| chg | Change in sales | A percent rise in sales (negative for a fall) to see what it does to operating income. Optional. |
| s1 | Sales before | Sales in the earlier period. |
| s2 | Sales after | Sales in the later period. |
| oi1 | Operating income before | Operating income in the earlier period. Must be above $0. |
| oi2 | Operating income after | Operating income in the later period. Negative for a loss. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| dol | Degree of operating leverage (DOL) | Contribution margin ÷ operating income, or % change in operating income ÷ % change in sales. |
| contribution | Contribution margin | Sales − variable costs. |
| income | Operating income | Contribution margin − fixed costs. |
| incomeChange | Change in operating income | DOL × the change in sales you entered. |
| salesPct | Change in sales | (Sales after − sales before) ÷ sales before × 100. |
| incomePct | Change in operating income | (Operating income after − before) ÷ operating income before × 100. |

## Method

From sales and costs: contribution margin = sales − variable costs; operating income = contribution margin − fixed costs; DOL = contribution margin ÷ operating income; change in operating income = DOL × change in sales. From two periods: DOL = ((income after − income before) ÷ income before) ÷ ((sales after − sales before) ÷ sales before).

## Assumptions

- Variable costs change in proportion to sales and fixed costs stay the same, so DOL holds for changes from this sales level.
- Operating income is income before interest and income tax.
- Arithmetic is exact on the typed decimals; DOL shows to 2 decimals, percents to 2 decimals and money to the cent, halves up.

## Worked examples

1. from = costs, sales = $250,000.00, vc = $102,000.00, fc = $63,000.00, chg = 10% gives dol = 1.741176, contribution = $148,000.00, income = $85,000.00, incomeChange = 17.411765%. Source: OpenStax, Principles of Managerial Accounting, 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage (degree of operating leverage = contribution margin ÷ net operating income; DOL × percentage change in sales = percentage change in net operating income; Company A and Company B). https://openstax.org/books/principles-managerial-accounting/pages/3-5-calculate-and-interpret-a-companys-margin-of-safety-and-operating-leverage: 148,000 ÷ 85,000 = 1.74 (rounded).
2. from = costs, sales = $315,000.00, vc = $105,000.00, fc = $125,000.00, chg = 10% gives dol = 2.470588, contribution = $210,000.00, income = $85,000.00, incomeChange = 24.705882%. Source: OpenStax, Principles of Managerial Accounting, 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage (degree of operating leverage = contribution margin ÷ net operating income; DOL × percentage change in sales = percentage change in net operating income; Company A and Company B). https://openstax.org/books/principles-managerial-accounting/pages/3-5-calculate-and-interpret-a-companys-margin-of-safety-and-operating-leverage: 210,000 ÷ 85,000 = 2.47 (rounded).
3. from = periods, s1 = $250,000.00, s2 = $200,000.00, oi1 = $85,000.00, oi2 = $55,400.00 gives dol = 1.741176, salesPct = -20%, incomePct = -34.823529%. Source: OpenStax, Principles of Managerial Accounting, 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage (degree of operating leverage = contribution margin ÷ net operating income; DOL × percentage change in sales = percentage change in net operating income; Company A and Company B). https://openstax.org/books/principles-managerial-accounting/pages/3-5-calculate-and-interpret-a-companys-margin-of-safety-and-operating-leverage (Company A: sales $200,000 and net income $55,400 after a 20% decrease, 34.8% less income).
4. from = costs, sales = $400,000.00, vc = $250,000.00, fc = $180,000.00 gives dol = -5, contribution = $150,000.00, income = -$30,000.00. Source: OpenStax, Principles of Managerial Accounting, 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage (degree of operating leverage = contribution margin ÷ net operating income; DOL × percentage change in sales = percentage change in net operating income; Company A and Company B). https://openstax.org/books/principles-managerial-accounting/pages/3-5-calculate-and-interpret-a-companys-margin-of-safety-and-operating-leverage (formula).

## FAQ

### What is operating leverage?

Operating leverage measures how sensitive operating income is to a change in sales. A business with high fixed costs and low variable costs has high operating leverage: once its fixed costs are covered, each extra sale adds a lot to income, and each lost sale takes a lot away.

### How do I calculate the degree of operating leverage?

Divide the contribution margin (sales minus variable costs) by operating income. Company A had sales of $250,000, variable costs of $102,000 and fixed costs of $63,000: contribution margin $148,000, operating income $85,000, so its DOL was 148,000 ÷ 85,000 = 1.74.

### How do I calculate DOL from two periods?

Divide the percent change in operating income by the percent change in sales. When Company A's sales fell 20%, from $250,000 to $200,000, its operating income fell 34.82%, from $85,000 to $55,400, so its DOL was 34.82 ÷ 20 = 1.74.

### What does a DOL of 2.47 mean?

Each 1% change in sales changes operating income by 2.47%. Company B's DOL was 2.47, so a 10% rise in sales would raise its operating income by 24.7%, and a 10% fall would cut it by 24.7%.

### Is high operating leverage good or bad?

Both. High operating leverage makes profits grow fast when sales rise, but fall fast when sales drop, so it adds risk. A business whose costs are mostly fixed has high operating leverage; one whose costs are mostly variable has low operating leverage.

### Why is my degree of operating leverage negative?

Sales are below the break-even point, so operating income is a loss. DOL is then negative and hard to read; it is largest in size just above and below break-even. At exactly break-even, operating income is $0 and DOL has no value.

## Sources

- OpenStax, Principles of Managerial Accounting, 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage: operating leverage measures how sensitive net operating income is to a percentage change in sales; degree of operating leverage = contribution margin ÷ net operating income; DOL × percentage change in sales = percentage change in net operating income; Company A (DOL 1.74) and Company B (DOL 2.47), and both after a 20% fall in sales. https://openstax.org/books/principles-managerial-accounting/pages/3-5-calculate-and-interpret-a-companys-margin-of-safety-and-operating-leverage (retrieved 2026-10-19)