Rule of 40 Calculator
Measure SaaS business health: Growth Rate + Profit Margin ≥ 40%
Business Metrics
Enter your SaaS growth and profitability metrics
Year-over-year revenue growth percentage
Operating margin or free cash flow margin
The Rule of 40 states that a SaaS company's combined growth rate and profit margin should exceed 40% to be considered healthy and sustainable.
Understanding the Rule of 40
What is the Rule of 40?
- Formula: Revenue Growth Rate + Profit Margin ≥ 40%
- Purpose: Balances growth and profitability for SaaS
- Benchmark: Investors use 40% as threshold for healthy SaaS
- Trade-off: High growth with negative margins can still pass
Strategic Scenarios
- 50% growth + (-10%) margin = 40: Early-stage, growth-focused
- 25% growth + 15% margin = 40: Balanced approach
- 10% growth + 30% margin = 40: Mature, profit-focused
- 30% growth + 30% margin = 60: Exceptional performance
When to Use
The Rule of 40 is specifically designed for SaaS and recurring revenue businesses. It's most relevant for companies past the seed stage with established revenue. For early-stage startups, growth often takes priority over profitability.