Rule of 40 Calculator

The Rule of 40 is the single most quoted health check for a software business, and this calculator works it out in seconds. The rule states that a healthy SaaS company's revenue growth rate plus its profit margin should add up to at least 40 percent. The logic is elegant: early-stage companies are expected to grow fast even while losing money, mature companies are expected to be highly profitable even as growth slows, and the sum of the two is what matters. A business growing 60 percent a year while burning enough to run at a minus 20 percent margin still clears the bar, and so does one growing a modest 10 percent at a 30 percent margin. Investors and boards use it to judge whether a company is balancing growth and profitability sensibly, or chasing growth at any cost. This calculator adds your two figures and tells you instantly whether you pass. You enter your year-on-year revenue growth rate as a percentage and your profit margin, which can be operating margin, EBITDA margin or free cash flow margin depending on the convention you follow, and the calculator returns the combined Rule of 40 score, your two inputs, and a clear pass or below-benchmark verdict. The results update as you type, so you can model how improving growth or margin moves the score. Use it to benchmark your business, to prepare for fundraising, or to set targets that trade off growth and profit. A score well above 40 signals an efficient, attractive business; below 40 suggests you are either not growing fast enough for the money you are spending, or not profitable enough for your growth rate. Use a consistent margin definition so the comparison is fair over time.

Rule of 40 = growth rate + profit margin. 40% or more is the benchmark. Use a consistent margin definition (operating, EBITDA or free cash flow). A guide, not investment advice.