Companies with high fixed costs (software, airlines) have high operating leverage: profits rise quickly when sales grow but fall just as fast when sales decline.
How to use the Degree of Operating Leverage Calculator
- Units sold
- Price per unit
- Variable cost per unit
- Fixed costs
- Expected change in sales
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter units sold, price per unit, variable cost per unit and fixed costs, and an expected change in sales.
Tips
- Use consistent periods (a year or a quarter) for flow figures and period-end values for balances.
- Average opening and closing balances when a ratio mixes a flow with a stock.
- Benchmark against competitors in the same industry.
- Read the ratio together with others – profitability, liquidity and efficiency tell different stories.
Common mistakes to avoid
- Using sales instead of cost of goods sold for inventory ratios.
- Mixing gross, operating and net profit.
- Ignoring one-off items that distort a single year.
Inputs explained
| Field | What to enter |
|---|---|
| Units sold | A number |
| Price per unit | Amount in your currency |
| Variable cost per unit | Amount in your currency |
| Fixed costs | Amount in your currency |
| Expected change in sales | In % |
What each result means
- Contribution margin = [Units sold]×([Price per unit] – [Variable cost per unit])
- Operating income (EBIT) = [Contribution margin] – [Fixed costs]
- Degree of operating leverage = [Contribution margin]÷[Operating income (EBIT)]
- Expected change in EBIT = [Degree of operating leverage]×[Expected change in sales]
Example values
How the main result changes when Units sold changes and everything else stays at the example values above:
| Units sold | Degree of operating leverage |
|---|---|
| 10,000 | -4 |
| 15,000 | 6 |
| 20,000 | 2.67 |
| 25,000 | 2 |
| 30,000 | 1.71 |
| 40,000 | 1.45 |
Formula
DOL = contribution margin ÷ operating income = Q(P − V) ÷ (Q(P − V) − F)DOL = % change in EBIT ÷ % change in salesEBIT change ≈ DOL × sales changeWorked example
Inputs — Units sold: 20,000; Price per unit: $50; Variable cost per unit: $30; Fixed costs: $250,000; Expected change in sales: 10 %.
Results — Contribution margin = $400,000.00; Operating income (EBIT) = $150,000.00; Degree of operating leverage = 2.67; Expected change in EBIT = 26.67 %.
Frequently asked questions
What is a high degree of operating leverage?
Above about 2–3 – profits swing strongly with sales.
What causes high operating leverage?
High fixed costs relative to variable costs.
Is high operating leverage bad?
It amplifies both gains and losses.
What formula does the Degree of Operating Leverage Calculator use?
DOL = contribution margin ÷ operating income = Q(P − V) ÷ (Q(P − V) − F).