Rule of 40 Calculator
Replace the sample values with your own, in one currency and one reporting period. Enter percentages as whole numbers: 2 for 2%. Calculations run in your browser.
Rule of 40 Score = Revenue Growth Rate + Profit Margin | Variable | Meaning |
|---|---|
Revenue Growth Rate | Year-over-year recurring revenue growth rate, in percent. |
Profit Margin | Profitability margin, typically free cash flow margin or EBITDA margin, in percent. |
Worked example
- Revenue Growth Rate
- 25%
- Profit Margin (FCF or EBITDA)
- 15%
- → Rule of 40 Score
- 40%
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What Rule of 40 measures
The Rule of 40 adds annual revenue growth percentage to a chosen profit margin. A combined score of 40% is a common reference point, whose usefulness depends on company stage and measurement conventions.
Prepare your inputs
- Calculate year-over-year revenue growth using comparable periods and a consistent revenue definition.
- Calculate the chosen margin for the current period. For FCF margin, divide period free cash flow by recognized revenue for that same period.
- Add the percentages as percentage points. Show both components next to the sum, and keep the margin basis unchanged when comparing periods.
Formula
Rule of 40 Score = Revenue Growth Rate + Profit Margin | Variable | Meaning |
|---|---|
Revenue Growth Rate | Year-over-year recurring revenue growth rate, in percent. |
Profit Margin | Profitability margin, typically free cash flow margin or EBITDA margin, in percent. |
Check the sample calculation
Worked example
- Revenue Growth Rate
- 25%
- Profit Margin (FCF or EBITDA)
- 15%
- → Rule of 40 Score
- 40%
Before using the result
- Do not mix an EBITDA-based peer score with your FCF-based score without explaining the difference.
- Use percentages consistently: entering 25 and 15 produces 40%, not 0.4%.
- A score can improve through spending cuts that damage future growth; examine the components and customer outcomes.
A dash means the result is undefined for the inputs, such as division by zero. Review the assumptions and input errors before interpreting it.
Read the Rule of 40 guide for a business scenario, interpretation, and frequently asked questions.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- Bessemer: The Rule of X
Discussion of growth, free cash flow margin, and the limitations of the Rule of 40.
Found an error or a definition that differs from your reporting? Send a correction with the page URL and the method you use.