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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.
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This calculator is powered by Founderpath — built to help founders access capital faster, deploy it smarter, and stay in control of their cash flow.

How it works

3 steps · Instant results
  1. 01
    Enter your revenue growth rateYour year-over-year revenue growth as a percentage — the growth half of the Rule of 40.
  2. 02
    Add your profit marginChoose EBITDA, operating, or free cash flow margin — whichever you track consistently. This is the profitability half.
  3. 03
    See your score and what to fixThe 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.
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Rule of 40 Inputs

Enter your revenue growth rate and profit margin

Annual (YoY) revenue growth — use ARR or LTM revenue

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.

Negative values are valid — enter e.g. -10 for a loss

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 ScoreEnter inputs above
—
Elite (60+)Top-decile growth and profitability
60+
Healthy (40–60)Passes the Rule of 40
40–60
Improving (20–40)Below benchmark, workable
20–40
Fix efficiency (<20)Growth and margin both light
<20
The guide

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, or reconcile all four margins — gross, operating, EBITDA, and net — with the SaaS Profit Margin Calculator so you know which one you are feeding into the score.

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 calculators
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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

Beyond the calculator

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.

Try Founderpath Free
  • Lift the growth half without dilutionWhen 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.
  • Protect margins while you scaleRevenue-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.
  • Benchmark against peersCompare 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.
  • Close in 24–48 hoursFounderpath connects to your billing data and provides a funding offer within 48 hours. No pitch decks, no board seats, no term sheet negotiations.
  • Keep 100% of your companyNo dilution, no warrant coverage, no loss of control. Aligned incentives from day one — you invest in growth and keep all the upside.
Questions
9 answers

Frequently asked questions

The Rule of 40 is a SaaS health benchmark that says your revenue growth rate plus your profit margin should add up to at least 40. It captures the tradeoff between growth and profitability in a single number, so a company growing fast while burning cash and a slower-growing but profitable company can be compared on the same scale. See the full Rule of 40 definition.
Rule of 40 = Revenue Growth Rate (%) + Profit Margin (%)

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).
40 is the pass mark. The bands around it:
  • 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
The Rule of 40 works with any of them; what matters is using the same one consistently. EBITDA margin is the most common and the default investors assume. Operating margin (GAAP) is more conservative. Free cash flow margin is the strictest and best reflects real cash generation. Not sure of your EBITDA margin? Calculate it with the EBITDA Margin Calculator.
Use your year-over-year revenue growth rate — either ARR growth or last-twelve-months (LTM) revenue growth. The formula is (Current Revenue − Revenue 12 months ago) ÷ Revenue 12 months ago × 100. Avoid mixing month-over-month or quarter-over-quarter figures, which overstate the growth half and inflate your score.
Companies above 40 consistently earn higher revenue multiples — often 2–3× the multiple of an otherwise-similar company below the line — because a passing score signals durable, efficient growth rather than growth bought with unsustainable burn. Translate your score into a range with the SaaS Valuation Calculator or the Revenue Multiple Calculator.
It becomes most meaningful once you have meaningful, predictable revenue — roughly $1M+ ARR. Below that, growth rates swing wildly off a small base and deep negative margins are normal, so the score is noisy. Early-stage founders should still track the trajectory: the goal is a clear path toward 40 as you scale, not hitting it at seed stage.
Investors and lenders use the Rule of 40 as a quick read on efficiency. When your profitability half is healthy but growth is capped by cash, non-dilutive capital is the cleanest way to lift the score — you fund sales, marketing, and product to accelerate growth and repay from revenue, so margins stay intact and you keep 100% of your equity. Founderpath provides revenue-based financing built for exactly this.
Yes — 100% free, no signup or email required. Everything runs in your browser and none of your numbers leave your device. Use it as often as you like across scenarios and periods.