Rule of 40 Calculator
The Rule of 40 is a benchmark used to judge whether a growth company balances ex
The Rule of 40 is a benchmark used to judge whether a growth company balances ex
How to use Rule of 40 Calculator
- Enter your year-over-year revenue growth rate, or switch to revenue mode and enter your prior and current period revenue.
- Choose your profit margin metric and enter the margin percentage (use a negative number if you are unprofitable).
- Read your Rule of 40 score and whether it clears the 40% target.
About Rule of 40 Calculator
The Rule of 40 is a benchmark used to judge whether a growth company balances expansion against profitability. It adds your revenue growth rate to your profit margin: if the two together reach at least 40%, the business is generally considered healthy. Fast growth can justify thin or negative margins, and strong margins can make up for slower growth — the rule looks at the combination rather than either number alone.
This calculator adds the two figures for you and shows how far you are above or below the 40% line. You can enter your year-over-year growth rate directly, or let the tool derive it from a prior and current revenue figure. You choose which profit margin to use — EBITDA, free cash flow, operating (EBIT), or net — since different investors favor different metrics; EBITDA and free cash flow margin are the most common in practice.
It runs entirely in your browser. Nothing you type is uploaded or stored anywhere — the math happens locally on your device. The Rule of 40 is a rule of thumb, not a valuation, so treat the score as a directional signal alongside your other metrics.
Frequently asked questions
- What is the Rule of 40?
- It is a benchmark for growth companies that adds revenue growth rate to profit margin. If the sum is 40% or higher, the business is considered to be balancing growth and profitability well. It is most often applied to SaaS and other recurring-revenue companies.
- How is the Rule of 40 score calculated?
- Score = revenue growth rate (%) + profit margin (%). For example, 35% growth plus a 10% margin gives a score of 45, which passes. A company with 15% growth and 10% margin scores 25, which falls short.
- Which profit margin should I use?
- There is no single standard. EBITDA margin and free cash flow margin are the most common choices, but operating (EBIT) and net margin are also used. Pick the metric your investors or board rely on, and stay consistent when comparing periods.
- Can the margin be negative?
- Yes. Many high-growth startups run negative margins while they scale. Just enter the margin as a negative number and the tool subtracts it from your growth rate, which is exactly how the Rule of 40 is meant to work.
- Is my financial data private?
- Yes. Every calculation happens in your browser. No revenue or margin figures are sent to a server, uploaded, or saved, and there is no sign-up.
- Is passing the Rule of 40 a guarantee the company is healthy?
- No. It is a quick sanity check, not a full financial analysis or valuation. A passing score is a good sign, but you should still look at retention, cash runway, unit economics, and market context.