Rule of 40 calculator
Check whether your SaaS growth and profitability together meet the 40-point threshold investors use to evaluate business health.
Enter your annual revenue growth rate and your profit margin. The Rule of 40 score is the sum of the two — a score at or above 40 indicates a healthy balance between growth and profitability.
Rule of 40 calculator inputs and results
Benchmark reference
How the Rule of 40 works
The Rule of 40 acknowledges that SaaS companies face a trade-off between investing in growth and running profitably. A company spending heavily on sales and marketing will grow fast but run at a loss; a mature company managing costs carefully might have slower growth but strong margins. The Rule of 40 treats these as interchangeable — the sum of both must reach 40 for the business to be considered healthy.
The score is most meaningful at growth-stage and beyond (typically Series B+ and $5M+ ARR). Very early-stage companies often score well below 40 while finding product-market fit, which is generally accepted. The score becomes a stronger signal at scale, where high growth rates are harder to sustain and margin improvement becomes the primary value driver.
About this tool
This tool calculates the Rule of 40 score for a SaaS business: the sum of annual revenue growth rate and profit margin (EBITDA, operating, or free cash flow margin — user's choice). A score above 40 is considered healthy; top-tier public SaaS companies often score 50–70+. Inputs: annual revenue growth rate % and profit margin %. Output: Rule of 40 score, quality label, and a visual benchmark comparison.
Frequently asked questions
What is the Rule of 40?
The Rule of 40 is a heuristic used by investors and operators to evaluate the balance between growth and profitability in a SaaS business. It states that a company's revenue growth rate plus its profit margin should equal or exceed 40%. The idea is that either fast growth or strong profitability is acceptable — but the two together must add up to at least 40 for the business to be considered healthy. A company growing at 60% can run at a 0% margin; a company growing at 10% should be generating at least 30% margins.
Which margin should I use — EBITDA, operating, or free cash flow?
All three are used depending on context. EBITDA margin is the most common for private SaaS companies and is the easiest to calculate. Operating margin is preferred by some analysts because it excludes the non-cash adjustments in EBITDA. Free cash flow margin is increasingly preferred for public SaaS because it captures how much cash the business actually generates after capex and working capital changes. Be consistent: compare your score against benchmarks that use the same margin definition.
What's a good Rule of 40 score?
40 is the baseline threshold for a "healthy" SaaS business. Scores of 50–60 are considered strong and are typical of well-run scale-stage companies. Scores above 60 are exceptional and characteristic of elite public SaaS companies like Datadog or Veeva at their peaks. Below 40 is not a death sentence — early-stage companies often have scores in the 10–30 range while investing heavily in growth — but it becomes a concern if the company is approaching an IPO or a growth-stage fundraise.
How does the Rule of 40 change at different growth stages?
Early-stage companies (under $5M ARR) often sacrifice margin entirely for growth, making the Rule of 40 less meaningful. It becomes most relevant from Series B onwards, when investors expect the business to have demonstrated a path to profitability alongside continued growth. At scale ($50M+ ARR), growth rates naturally compress, so the margin component becomes increasingly important. A company growing at 15% with a 30% EBITDA margin is generally viewed more favourably at this stage than one growing at 50% but burning heavily.