Rule of 40 Calculator

How to Use This Calculator

1. Enter Revenue Growth Rate % and Profit Margin % (EBITDA or FCF).
2. Rule of 40 score and status appear instantly.
3. Use Growth + FCF tab for the FCF-based variant.
4. Use Trend tab to track 4 quarters.
5. Switch to Professional for weighted score and implied valuation multiples.

Formula

Example

Frequently Asked Questions

• What is the Rule of 40? ▼
  The Rule of 40 states that a healthy SaaS company's revenue growth rate plus profit margin should equal at least 40. For example, 30% growth + 15% EBITDA margin = 45 — which passes. First popularized by venture investor Brad Feld.
• Which profit metric should I use — EBITDA or FCF? ▼
  Both are used. EBITDA is more common for private companies because it excludes capex and working capital. FCF (Free Cash Flow) is preferred by public market investors as it reflects actual cash generation. FCF Rule of 40 is a more conservative test.
• What is a good Rule of 40 score? ▼
  ≥40 is healthy. 30–40 is acceptable. Below 30 is considered weak by most SaaS investors. Best-in-class companies (Veeva, Datadog, Snowflake at peak) score 60+.
• Does Rule of 40 apply to early-stage startups? ▼
  It is most relevant for growth-stage companies (Series B+) with >$5M ARR. Very early startups are expected to have negative margins and are judged primarily on growth rate and market opportunity rather than Rule of 40.
• What is the weighted Rule of 40? ▼
  Some investors apply 1.5× weight to revenue growth vs margin, reflecting that growth is harder to buy back than margin. Weighted Rule of 40 = (Growth × 1.5 + Margin) / 2.5 × 2.5.

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