Rule of 40 Calculator (SaaS)
Enter revenue for this year and last year and the profit or cash flow margin.
Your numbers
$
$
%
Your results
Revenue growth
Revenue growth
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Rule of 40 score
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Result
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Margin needed at this growth
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Rule of 40 Calculator (SaaS) by TheCalcTools
How the Rule of 40 Calculator (SaaS) works
The Rule of 40 balances growth and profitability: a fast-growing company can lose money, a slow one should be profitable, but the two together should reach 40%.
Investors use it as a quick health check for software companies. Use the same margin definition consistently over time.
The formula
Score = revenue growth % + profit margin %
Worked example
Using the default values shown in the calculator:
| Revenue last year | $1e+07 |
|---|---|
| Revenue this year | $1.35e+07 |
| Profit margin (EBITDA or FCF) | 8 % |
- Growth 35.0% plus an 8% margin = 43.0: Passes (40 or more).
Result:
| Revenue growth | 35.0% |
|---|---|
| Rule of 40 score | 43.0 |
| Result | Passes (40 or more) |
| Margin needed at this growth | 5.0% |
Frequently asked questions
Which margin should I use?
EBITDA margin or free cash flow margin are both common. Free cash flow is stricter.
Sources and further reading
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This calculator gives estimates for information only. Check important results independently before you rely on them. See our disclaimer.