Free SaaS Health Calculator
Rule of 40 Calculator
Enter your revenue growth rate and profit margin to calculate your Rule of 40 score - the benchmark every SaaS investor uses to assess company health.
Year-over-year revenue growth
EBITDA or free cash flow margin (can be negative)
Enter your growth rate and profit margin above to calculate your Rule of 40 score
Rule of 40 Score Benchmarks
Notable SaaS Rule of 40 Scores
What is the Rule of 40?
The Rule of 40 is a SaaS benchmark that states a healthy software company's revenue growth rate plus profit margin should equal or exceed 40. It was popularized by Brad Feld and became a standard metric used by SaaS investors and analysts to assess business health.
The rule recognizes the fundamental trade-off in SaaS: companies can choose to grow fast and lose money, or grow slowly and make money, or find a sustainable balance between the two. A score of 40+ indicates that trade-off is working - the company isn't sacrificing too much margin for too little growth, or growing too slowly to justify its losses.
Early-stage startups frequently score below 40 because they prioritize growth over profitability. This is acceptable as long as the score is improving over time and there is a credible path to margin expansion as the business scales.
Rule of 40 Formula
Rule of 40 Formula
Score = Revenue Growth Rate (%) + Profit Margin (%)
Score ≥ 40 = passes the benchmark
Example Calculations
Frequently Asked Questions
What is the Rule of 40?
The Rule of 40 is a SaaS benchmark stating that a healthy company's revenue growth rate plus profit margin should equal or exceed 40. It balances growth and profitability - a company growing at 60% can lose money at -20% margin and still be healthy. The rule was popularized by Brad Feld and is widely used by SaaS investors.
What profit margin should I use?
EBITDA margin is the most common choice. Free cash flow margin is preferred by many investors as it is harder to manipulate. Operating income margin is also used. The key is consistency - use the same metric every quarter to track your trend over time.
Can early-stage startups pass the Rule of 40?
Many early-stage startups score below 40 because they invest heavily in growth. This is acceptable - investors apply the Rule of 40 more strictly to companies approaching IPO or Series C+. For early-stage companies, the trend matters more than the absolute score. If your score is improving each quarter, that's the signal investors want to see.
Does the Rule of 40 apply to B2B and B2C SaaS?
The Rule of 40 was designed for B2B SaaS with subscription revenue. It applies less cleanly to B2C, e-commerce, or marketplace businesses with different revenue models. For non-SaaS companies, use it directionally rather than as a hard benchmark.
What is a Rule of 60?
The Rule of 60 is an informal extension - companies scoring 60+ are considered elite, not just healthy. Companies like Snowflake in their hypergrowth phase consistently scored above 60. This is rare even among the best public SaaS companies.