Rule of 40 Calculator
The single number investors use to judge whether your SaaS balances growth and profitability. Growth rate plus profit margin should clear 40.
Inputs
Use trailing twelve month revenue for the cleanest read. Pick which profit metric you are using.
Trailing twelve month or current annualized revenue
Same window, one year before
Use a negative number if you are running a loss
Rule of 40 benchmarks
Related tools
Want this built for you? Week One Labs ships custom SaaS and mobile MVPs in fixed-price 14-day sprints.
Fixed price. You own the code from day one. Book a free scope call.
I know which AI tools are worth your time.
I build with AI every single day. I will send you what actually works, what is overhyped, and what you should be paying attention to next. No fluff, just signal.
Get the AI signal. Drop your email below.
No spam. Just useful AI intel for builders.
Frequently asked questions
What is the Rule of 40?+
The Rule of 40 is a SaaS health benchmark that says your annual revenue growth rate plus your profit margin should add up to at least 40 percent. The idea is that growth and profitability are tradeable: a company growing 60 percent while burning a 20 percent loss still passes (60 minus 20 equals 40), and so does a company growing 10 percent at a 30 percent profit margin. It gives investors a single number to judge whether a software company is balancing growth and efficiency well.
How do you calculate the Rule of 40?+
Rule of 40 score = Revenue Growth Rate (percent) + Profit Margin (percent). Growth rate is year-over-year revenue growth: (current period revenue minus prior period revenue) divided by prior period revenue. Profit margin is your chosen profitability metric divided by current revenue. If the two add up to 40 or more, you pass. For example, 35 percent growth plus 8 percent FCF margin equals 43, which passes.
Which profit margin should I use, EBITDA, FCF, or net income?+
There is no single mandated metric, but free cash flow (FCF) margin is the most common choice among investors in 2026 because it is the hardest to manipulate and reflects real cash generation. EBITDA margin is also widely used and is friendlier to companies with heavy non-cash expenses. Net income margin is the most conservative. The important thing is to pick one and stay consistent quarter over quarter so the trend is comparable. This calculator lets you label which one you are using.
What is a good Rule of 40 score?+
Exactly 40 is the pass line. Public SaaS leaders that consistently trade at premium multiples tend to score 50 or higher. A score of 40 to 50 is healthy. 30 to 40 means you are close and usually fixable within a couple of quarters. Below 30 signals that neither growth nor efficiency is strong enough, and below 20 is a red flag investors will press on. Elite outliers occasionally post 60 plus, usually by pairing fast growth with real profitability.
Does the Rule of 40 apply to early-stage startups?+
It is most meaningful once you are past roughly 1 million dollars in ARR and have a real growth rate to measure. Very early companies often grow several hundred percent year over year off a tiny base, which makes the score look enormous and not very informative. The Rule of 40 becomes a serious operating and fundraising benchmark from Series A onward, when growth rates normalize into the double or low triple digits and burn starts to matter to investors.
Is the Rule of 40 still relevant in 2026?+
Yes, though it now sits alongside the burn multiple as the two headline efficiency metrics investors watch. After the end of the zero-interest-rate era, the market stopped rewarding growth at any cost, which made the profitability half of the Rule of 40 matter much more than it did in 2021. A company that passes purely on growth while posting a deep loss gets more scrutiny today than it used to. The rule survives because it captures the core tradeoff in one number.
How can I improve my Rule of 40 score?+
You move either lever. On growth: raise prices on new customers, reduce churn so net revenue retention climbs, and double down on the acquisition channels that already work. On margin: cut underperforming paid spend, renegotiate infrastructure and tooling costs, and trim headcount in functions not directly tied to revenue. Because the score is a sum, a few points on each side compound. Most teams that move the number meaningfully push growth and margin at the same time rather than betting everything on one.