Rule of 40 Calculator
The Rule of 40 is a SaaS health benchmark stating that a company's revenue growth rate plus its profit margin should add up to 40% or more.
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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Rule of 40 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. |
How to Calculate Rule of 40
Worked example
- Revenue Growth Rate
- 25%
- Profit Margin (FCF or EBITDA)
- 15%
- → Rule of 40 Score
- 40%
Full definition, benchmarks, and common mistakes live on the Rule of 40 glossary page ; quick answers are in the Rule of 40 FAQ .