Live data
MSFT — Operating Margin, Net Margin, Revenue Growth. Open MSFT on the Ledge to see current values.
Compare
| Cost Type | Examples | Impact on Margins |
|---|---|---|
| Fixed costs | Rent, salaries, software licenses, R&D | High fixed costs = operating leverage (margins expand with volume) |
| Variable costs | Materials, shipping, commissions, COGS | High variable costs = margins stay flat regardless of volume |
| Semi-variable | Utilities, overtime, cloud computing | Step up at capacity thresholds |
Key point
Operating leverage is a double-edged sword. Software companies have high fixed costs and low variable costs, so profits soar when revenue grows. But in a downturn, those fixed costs do not shrink.
Try it
Look at the **margin trends** for any company in the Financials section. Expanding margins with growing revenue signals operating leverage.
Key insight
Check-in
Company A has 80% gross margin, 20% operating margin. Company B has 40% gross margin, 20% operating margin. Same industry. Who has the better business?
Check your understanding
Sit with the ideas.
A SaaS company spends $20M on engineers (fixed) and $0.50 per user on cloud hosting (variable). It has 1 million users paying $10/month each. Revenue doubles to 2 million users. What happens to its profit margin?
Why: