Rule of 40 Calculator
Add your revenue growth rate and profit margin to see your Rule of 40 score, whether you pass the benchmark, and which half — growth or profitability — is holding you back. No signup required.
How It Works
1
Enter your revenue growth rate
Your year-over-year revenue growth as a percentage — the growth half of the Rule of 40.
2
Add your profit margin
Choose EBITDA, operating, or free cash flow margin — whichever you track consistently. This is the profitability half.
3
See your score and what to fix
The calculator adds the two halves, tells you whether you pass 40, shows which half is dragging your score, and calculates exactly what it takes to reach the benchmark.
Rule of 40 Inputs
Enter your revenue growth rate and profit margin
YoY Revenue Growth Rate (%)
Profit margin type
Rule of 40 works with any consistent margin — EBITDA is the most common; free cash flow is the most conservative. Pick one and use it every period.EBITDA margin (%)
Your Rule of 40 Score
Revenue growth rate + profit margin
Enter your growth rate and margin to see your score
Rule of 40 Benchmarks
Score bands investors use to read SaaS health
Your Score
Enter inputs above—
Elite (60+)
Top-decile growth and profitability60+
Healthy (40–60)
Passes the Rule of 4040–60
Improving (20–40)
Below benchmark, workable20–40
Fix efficiency (<20)
Growth and margin both light<20
How to Calculate the Rule of 40
The Rule of 40 Formula
Rule of 40 = Revenue Growth Rate (%) + Profit Margin (%)
A combined score of 40 or higher is considered healthy
The Rule of 40 says a healthy SaaS company's revenue growth rate plus its profit margin should add up to at least 40. It is the single most-cited heuristic investors use to judge whether a business is balancing growth and profitability — because either one alone can be gamed. A company growing 80% while burning cash and a company growing 5% at a 35% margin are both making a deliberate tradeoff; the Rule of 40 puts them on the same scale. For the underlying definition, see our Rule of 40 glossary entry.
For the profit half you can use EBITDA margin, operating margin, or free cash flow margin — the rule works with any of them as long as you stay consistent. EBITDA is the most common; free cash flow is the most conservative. Not sure of your margin? Start with the EBITDA Margin Calculator.
What Is a Good Rule of 40 Score?
40 is the pass/fail line, but the bands above and below it tell you more about where you stand:
60+ — Elite
Top-decile performance. Rare combinations of strong growth and real profitability. Commands the highest valuation multiples in the market.
40–60 — Healthy
You pass the Rule of 40. Investors read this as a well-managed business making a sound growth-vs- profit tradeoff. Companies here typically earn 2–3× the multiples of peers below the line.
20–40 — Improving
Below benchmark but workable. Common for scale-ups mid-transition from growth to profitability. The question investors ask: is the trajectory pointed at 40?
Under 20 — Fix efficiency
Both halves are light. Growth isn't fast enough to justify the burn, or margins are too thin to offset slow growth. The priority is unit economics before scale.
How the Rule of 40 Affects Valuation
The Rule of 40 is a valuation shortcut because it correlates with the revenue multiple a company earns. Public and private SaaS buyers consistently pay higher ARR multiples for businesses above 40 — often 2–3× the multiple of an otherwise-similar company below the line — because a passing score signals the growth is durable rather than bought with unsustainable burn.
To translate your score into a valuation range, use the SaaS Valuation Calculator or see what ARR multiple your growth and margin justify with the Revenue Multiple Calculator.
Below 40 and Growth-Constrained?
When your profitability half is healthy but your growth half is capped by cash, the fastest way to lift your Rule of 40 is to fund growth — without torching the margin you've worked to build. That is the exact tradeoff non-dilutive capital is designed for: you invest in sales, marketing, and product to accelerate the growth half, and pay it back from revenue as it comes in, so profitability stays intact and you keep 100% of your company.
Founderpath provides revenue-based financing to bootstrapped SaaS founders — funding the growth half of your Rule of 40 without dilution, board seats, or loss of control.
Related SaaS Calculators
The Rule of 40 combines growth and profitability. Use these calculators to work each half and translate the score into valuation:
Financial Health
Burn Rate Calculator — Calculate net burn rate, cash runway, and burn multiple
ARR Calculator — Calculate annual recurring revenue from monthly subscriptions and annual contracts
MRR Calculator — Break down new, expansion, contraction, and churned MRR
Churn Rate Calculator — Measure customer and revenue churn with annualized projections
NRR Calculator — Track net revenue retention and gross revenue retention rates
Growth Rate Calculator — Calculate MoM, YoY, and CAGR growth rates from revenue data
Break-Even Calculator — Find the units and revenue needed to cover all costs and reach profitability
EBITDA Margin Calculator — Calculate EBITDA margin and benchmark against SaaS and industry norms
SaaS Runway Calculator — See how many months of cash you have left and model scenarios to extend it
SaaS Financial Model Template — Forecast MRR, ARR, burn, and runway over 24 months with scenario comparison and CSV export
Customer Metrics
CAC Calculator — Measure customer acquisition cost and LTV:CAC ratio
LTV Calculator — Calculate customer lifetime value, lifespan, and LTV:CAC ratio
Payback Period Calculator — Calculate how long it takes to recover customer acquisition costs
Viral Coefficient Calculator — Measure your K-factor and model viral growth scenarios
Pricing & Valuation
Markup Calculator — Calculate markup percentage, selling price, profit, and gross margin
Equity Dilution Calculator — Model how funding rounds affect founder ownership over time
SaaS Valuation Calculator — Estimate your company value using ARR multiples and growth-rate benchmarks
Revenue Multiple Calculator — See what ARR multiple your growth rate, NRR, and gross margin justify
Stuck below the Rule of 40?
Founderpath helps you lift the growth half without dilution.
The Rule of 40 forces a tradeoff between growth and profitability. Non-dilutive capital lets you invest in growth — sales, marketing, product — while protecting margins and keeping 100% of your company.
When profitability is healthy but growth is capped by cash, non-dilutive capital funds the sales and marketing that push your Rule of 40 score higher — no equity given up.
Revenue-based financing means payments flex with revenue as it comes in, so you can invest in growth without torching the profitability half of the equation.
Compare your Rule of 40, growth rate, and margin to thousands of SaaS companies at your ARR stage — know exactly which half is dragging your score.
Founderpath connects to your billing data and provides a funding offer within 48 hours. No pitch decks, no board seats, no term sheet negotiations.
No dilution, no warrant coverage, no loss of control. Aligned incentives from day one — you invest in growth and keep all the upside.
Frequently Asked Questions
Example: a company growing revenue 25% year over year with a 20% EBITDA margin scores 25 + 20 = 45 — it passes. A company growing 60% with a −25% margin scores 35 — it falls just short despite fast growth. Use your year-over-year revenue growth and a consistent margin (EBITDA, operating, or free cash flow).
- 60+: Elite — top-decile growth and profitability
- 40–60: Healthy — you pass, and typically earn 2–3× the valuation multiples of peers below the line
- 20–40: Improving — below benchmark but workable, common for scale-ups mid-transition
- Under 20: Fix efficiency — both growth and margin are light; unit economics come first
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