Rule of 40 Calculator

What the Rule of 40 is for

The Rule of 40 is a fast way to judge whether a software company is balancing growth and profitability well. Add the revenue growth rate to the profit margin, and if the total is 40 or more, the business is considered healthy. The appeal is that it puts two things that usually pull against each other onto a single scale.

It works because early and late stage companies can both pass in different ways. A startup growing 60 percent while burning 20 percent scores 40. A mature company growing 10 percent at a 30 percent margin also scores 40. The number treats those as equally healthy, which is the point.

How to calculate it

• Rule of 40 score = revenue growth rate + profit margin, both as percentages.
• Pass mark is 40. At or above it, the growth-profit balance is considered healthy.
• Gap to 40 = 40 − your score. That many points from either growth or margin gets you there, since the two are added.

The calculator above scores your inputs, shows growth and margin stacked against the 40 line, and tells you how far you are from the bar and which side of the equation is carrying the score.

Reading your score

• Below 40. The combination of growth and profitability is light. Either lever can close the gap, so decide which is cheaper to move given your stage.
• 40 to 60. A healthy balance that most investors want to see. Consistency here matters more than a single strong quarter.
• Above 60. Exceptional and uncommon. Very few companies sustain it for long.
• The mix matters. A 45 built on 40 growth and 5 margin is an early-stage profile. The same 45 from 10 growth and 35 margin is a mature one. Same score, very different companies.

If growth is the weaker side of your score, the useful work is growing more efficiently: measure how fast pipeline converts with the Sales Velocity Calculator and check acquisition economics with the LTV:CAC Calculator. If margin is the weaker side, start with what you spend to sell using the Sales Tech Stack Cost Calculator.

Frequently asked questions

What is the Rule of 40?

A SaaS health check: revenue growth rate plus profit margin should be at least 40. It captures the trade-off between growing and being profitable in one number, so fast-growing and highly profitable companies can both pass.

How do you calculate the Rule of 40?

Add growth rate and profit margin as percentages. 30% growth with a 15% margin scores 45 and passes. 20% growth with a −10% margin scores 10 and falls short.

What counts as growth and profit in the Rule of 40?

Growth is usually year-over-year recurring or total revenue growth. Profit is a margin, most often EBITDA, though many investors prefer free cash flow margin. Be consistent so the score is comparable over time.

What is a good Rule of 40 score?

40 is the pass mark, above 40 is healthy, and above 60 is exceptional. The median public SaaS company has often sat below 40, so clearing it consistently is a strong signal.