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Rule of 40 Calculator
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The Rule of 40 says a healthy SaaS company's revenue growth rate (%) plus its profit margin (%) should add up to 40 or more. A company growing 30% per year with a 15% profit margin scores 45 and passes; one growing 10% with a -5% margin scores 5 and fails. It's a single-number way to judge whether fast growth is justified by weak margins, or slow growth is offset by strong profitability. This calculator returns your score instantly from two inputs.
Your Rule of 40 score
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How the Rule of 40 is calculated
Rule of 40 score = revenue growth rate (%) + profit margin (%). If a company grows revenue 30% year-over-year and runs a 10% EBITDA or free cash flow margin, its score is 30 + 10 = 40 — right at the benchmark.
The rule doesn't care how the 40 is reached: a high-growth, low-margin company (60% growth, -20% margin = 40) and a slow-growth, high-margin company (10% growth, 30% margin = 40) both pass. It's a single number for balancing growth against capital efficiency, not a target for either metric alone.
What counts as a good Rule of 40 score
40 or above is the widely cited healthy benchmark for public and late-stage private SaaS companies. Above 50 is considered excellent and correlates with premium valuation multiples in public SaaS comps.
Early-stage companies often run below 40 on purpose — spending down margin to buy growth — so the rule matters most from Series B/C onward, once a business is expected to show it can convert growth into a durable, capital-efficient model.
FAQ
Questions
What is a good Rule of 40 score?
40 or higher is the standard healthy benchmark for SaaS companies. Above 50 is considered excellent and is associated with higher valuation multiples in public SaaS comps.
Which profit margin should I use — EBITDA or free cash flow?
Either is commonly used; EBITDA margin is more common in public SaaS benchmarking, free cash flow margin is stricter and preferred by some investors. Be consistent with whichever one you compare against over time.
Is it bad to score under 40?
Not necessarily for early-stage companies deliberately trading margin for growth. It becomes a real signal from Series B/C onward, when investors expect growth to be increasingly funded by the business itself, not just capital raised.
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