Financial Glossary
High Operating Leverage
High operating leverage describes a cost structure in which a large share of a company's costs are fixed rather than variable. Because fixed costs do not rise much as sales grow, each additional dollar of revenue contributes heavily to profit once the fixed-cost base is covered. The flip side is that profits fall just as sharply when revenue declines, making earnings more volatile.
Problem & Application
Campgrounds, RV parks, and hospitality operators tend to carry high operating leverage: land, facilities, and core staff are fixed, while the cost of serving one more guest is small. That structure rewards filling capacity, since incremental bookings flow almost entirely to the bottom line, but it punishes slow seasons when fixed costs continue regardless of occupancy. Understanding your degree of operating leverage clarifies how sensitive profit is to occupancy swings and how much cash cushion you need for the off-season.
In Short
High operating leverage magnifies both gains and losses, so businesses with this structure must manage capacity and cash reserves with the volatility in mind.