SaaS

Rule of 40 Calculator

Add revenue growth rate and profit margin to check a common SaaS balance-of-growth benchmark.

Last reviewed: April 30, 2026Free toolMethodology

Rule of 40 Calculator

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These fields start with sample inputs. Keep them or replace them, then run the tool to show a fresh result.

Number fields accept plain values and common formatted input such as 250000, 250,000, or 1,234.56.

Result

Calculating the sample result.

Why it matters

The Rule of 40 persists because it gives a simple way to evaluate whether growth and profitability are reasonably balanced.

When to use

  • Board and investor reporting
  • Benchmarking operating tradeoffs between growth and profitability
  • Framing strategic changes in one number

Inputs & Outputs

Inputs

  • Revenue growth rate is typically annual recurring revenue growth or a similar recurring growth metric.
  • Profit margin is often EBITDA, operating margin, or free-cash-flow margin depending on the reporting standard used.

Outputs

  • Rule of 40 score shows the sum of growth and margin.
  • Gap to 40 shows how far the company is above or below the benchmark.

Rule of 40 formula

Add the chosen growth rate and profitability margin. The combined result is compared with a 40-point benchmark.

Rule of 40 = growth rate + profit margin

Worked example

1

Simple benchmark check

A company is growing 32% and running at a 12% profit margin.

Inputs

  • Growth rate: 32%
  • Profit margin: 12%

Steps

  • Rule of 40 = 32 + 12 = 44

Result

  • The company scores 44 and is 4 points above the Rule of 40 benchmark.

Edge cases & caveats

  • The metric simplifies a complex business into one benchmark.
  • Results depend on which growth and margin definitions are used.

Frequently Asked Questions

Does being below 40 mean the company is unhealthy?

Not automatically. Stage, capital structure, and strategic context matter. The metric is a benchmark, not a verdict.

Should I use ARR growth or revenue growth?

Use the growth metric your stakeholders rely on most, but keep the choice consistent over time.

Keep going

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