Are my costs scaling faster than my revenue?

Bottomline compares expense and revenue growth rates over 6 months to flag when costs are outpacing your top line.

Am I spending too much on overhead?

Your monthly report calculates your overhead ratio and shows which fixed costs are eating into your margins.

What does it cost me per job, fully loaded?

Bottomline calculates your total cost per job including direct labor, materials, and allocated overhead.

Should I raise my prices?

If every dollar of revenue brings more than a dollar of cost, pricing is the first lever to pull. Your report gives you the data.

What’s my gross margin?

Bottomline tracks your gross margin monthly and shows whether it is improving or declining as you grow.

If revenue goes up 10%, do my expenses go up more than 10%?

This is the operating leverage question. The answer determines whether growth makes you richer or just busier. Here's how to measure it with the data you already have.

6 min read

The short answer

Do expenses scale proportionally? If a 10% revenue increase causes expenses to rise more than 10%, you have negative operating leverage. Every new dollar of revenue costs more than a dollar to produce. If expenses rise less than 10%, you have positive leverage and growth is profitable.

Why operating leverage decides whether growth pays off

Imagine two businesses. Both grow revenue by $10,000 this month. Business A's expenses grew by $7,000. Business B's expenses grew by $12,000. Business A kept $3,000 of that growth. Business B lost $2,000 by growing. Same revenue increase, opposite outcomes.

Operating leverage is the relationship between revenue changes and expense changes. High fixed costs (rent, salaries, software) give you leverage because they don't increase when you sell more. High variable costs (materials, commissions, per-job labor) reduce leverage because every new job adds proportional costs.

Most small businesses have a mix. The question is whether your mix is working for you or against you. And the only way to know is to look at how your expenses actually responded the last time revenue went up.

Measuring the expense response to revenue changes

You are looking for the ratio: for every 1% increase in revenue, how much do expenses increase? If the answer is less than 1%, you have positive operating leverage. If it is more than 1%, growth is costing you money.

How to calculate your operating leverage ratio

1
Pull 6 months of revenue and expenses
In QuickBooks, run Profit and Loss for the last 6 months grouped by month. In Xero, set 6 comparison periods. Note Total Income and Total Expenses for each month.
2
Calculate month-over-month changes
For each month, calculate the percentage change in revenue from the prior month and the percentage change in expenses from the prior month.
3
Compare the two percentages
In the months where revenue went up, did expenses go up by a smaller percentage, the same, or more? Look at the pattern across multiple months, not just one.
4
Identify the categories causing the drag
If expenses are outpacing revenue, drill into the P&L to find which categories are responsible. Is it payroll scaling too fast? Is it material costs? Advertising? The fix depends entirely on which line items are causing the problem.

Total time: about 20 minutes. One report, a calculator, and some patience. Most people give up halfway through the math.

Watch this ratio every month as you grow

Operating leverage can change. You hire a new person and suddenly expenses respond differently to revenue. You switch to a commission-based pay structure and your variable costs increase. Check this ratio monthly so you are never surprised by the gap between revenue growth and what you actually keep.

Or see your operating leverage calculated automatically

Bottomline tracks your revenue and expense growth rates every month. It calculates whether your expenses are scaling faster, slower, or in line with your revenue, and flags the specific categories responsible for any imbalance.

Operating leverage

Revenue up 10% → Expenses up 13.4%

Negative leverage

For every $1 of revenue growth, you are spending $1.34. Payroll (+$5,800) and subcontractors (+$3,200) are the primary drivers. Consider whether current staffing levels can handle more volume before adding headcount.

From a real Bottomline report. Leverage is calculated from your actual accounting data each month.

No spreadsheets. No month-by-month comparisons. Just a clear answer: is growth making you more profitable or less? And exactly which costs are responsible.