Operating Leverage with Your Business Model

Operating Leverage
 
In a company, operating leverage is the calculation of fixed costs as opposed to variable costs. Operating leverage can measure the profitability of a company.
 
How Operating Leverage differs in manufacturing, service, merchandising, and e-commerce companies.
 
In manufacturing, majority of capital may be more dedicated on fixed costs, such as rent/leases, taxes, etc., as opposed to variable costs, such as the seeds necessary to manufacture the individual or total amount of products. Majority of capital dedicated to fixed costs as opposed to variable costs is considered high operating leverage and may prove the company to be less profitable.
 
In service or merchandising (dependent upon the type of service or merchandising), majority of capital is more dedicated on variable costs as opposed to fixed costs and may present low operating leverage.
 
In e-commerce, it is dependent on the type of business. E-commerce companies vary in the type of product they provide and can pose either high or low operating leverage.
 
How operating leverage be used to increase a company's profitability.
 
Proper analysis to decrease operating leverage will decrease fixed costs, which will allow the company to become more profitable.