Rule of 40 Calculator

The Rule of 40 is a SaaS health check that says your revenue growth rate plus your profit margin should add up to at least 40%. The formula is simply growth rate (%) plus profit margin (%). A score of 40 or higher signals a healthy balance between growing fast and running profitably, while a lower score suggests you are neither growing quickly enough nor profitable enough to make up for it.

Both are common, and this calculator lets you pick either. EBITDA margin (EBITDA divided by revenue) is the most widely quoted version, while free cash flow margin (FCF divided by revenue) is favored by investors who want a cash-based view. The choice changes only the margin number you plug in, not the 40 threshold. Pick whichever your investors or board track, and stay consistent over time.

Add your year over year revenue growth rate to your profit margin, both expressed as percentages. For example, 30% growth plus a 15% EBITDA margin gives a score of 45, which clears the 40 bar with 5 points to spare. If you enter dollar figures instead, the calculator derives the margin as profit divided by revenue times 100, then adds it to your growth rate.

Yes. The Rule of 40 deliberately rewards growth, so a high enough growth rate can offset a negative margin. For instance, 80% growth with a negative 30% margin still scores 50 and passes. That is why fast-scaling startups often pass even while burning cash, as long as their growth more than makes up for the loss.

It was designed for recurring-revenue software companies, where high gross margins and predictable revenue make the trade-off between growth and profitability meaningful. It is a rough heuristic, not a hard rule, and it works less well for early-stage startups, hardware businesses, or companies with lumpy revenue. Treat the score as one signal among many rather than a verdict.

No. This tool gives an estimate based on the numbers you enter and is for educational and planning purposes only. It is not financial, investment, or accounting advice. For decisions about valuation, fundraising, or company strategy, consult a qualified financial professional who can review your full situation.