Rule of 40 Calculator

What is Rule of 40?

The Rule of 40 adds revenue growth rate and EBITDA margin into one score. It is a shorthand for whether a SaaS company is balancing growth and profitability at a level public markets reward.

Formula

Version v1. See methodology and the public formula repo for sources and change history.

Worked example

Using the default example inputs (Revenue growth: 32%; EBITDA margin: 12%), Rule of 40 equals 44 (Rule of 40 score). A score at or above 40 balances growth and profitability for SaaS operators.

What good looks like

A score at or above 40 is the common benchmark for mature SaaS. High-growth companies may run below 40 while investing; the score is most useful for trend and peer comparison, not as a sole gate.

Directional guidance only, not a cohort benchmark claim. Premium cohort bands appear when sample thresholds are met for your profile.

Read the Rule of 40 benchmark guide for methodology, cohort percentiles, and how participant bands differ from public guidance.

FAQ

What is Rule of 40?

The Rule of 40 adds revenue growth rate and EBITDA margin into one score. It is a shorthand for whether a SaaS company is balancing growth and profitability at a level public markets reward.

What is the Rule of 40 formula?

Rule of 40 = Revenue growth % + EBITDA margin %

Why EBITDA margin?

EBITDA approximates operating profitability before capital structure. Teams sometimes substitute operating margin; stay consistent period to period.

Rule of 40 vs Rule of X?

Rule of X weights growth more heavily and can incorporate free cash flow margin. See the Rule of X calculator for later-stage framing.

Does a score below 40 mean failure?

No. Early-stage companies often trade profitability for growth. Use it alongside burn, retention, and payback.