What is the Rule of 40?

The Rule of 40 states that a healthy SaaS company's revenue growth rate plus profit margin should sum to at least 40%. A company growing 60% with −20% margins meets the threshold.

What metric should I use for the profitability component?

EBITDA margin is most commonly used, but free cash flow margin or operating margin are also acceptable. Be consistent in how you calculate it across time periods.

Rule of 40 Calculator — SaaS Growth + Profitability Balance

Calculate the Rule of 40 score for your SaaS company. A score ≥ 40 indicates a healthy balance between growth rate and profit margin.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate the Rule of 40 score for your SaaS company. A score ≥ 40 indicates a healthy balance between growth rate and profit margin. Use the rule of 40 (saas) result to inform your calculation.

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Rule of 40 Calculator — SaaS Growth + Profitability Balance

How to Use

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Frequently Asked Questions

What is the Rule of 40?

What metric should I use for the profitability component?