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Rule of 40 Calculator

The standard scaling check for SaaS: growth rate plus operating profit margin should be at least 40%. See where you stand.
Rule of 40 score
40%
Growth rate
60%
Profit margin
-20%
VerdictHealthy. Above the standard SaaS bar. Investors will see this as scaleable.
Benchmarks
  • ≥ 60%Top decile
  • 40–60%Healthy
  • 25–40%Workable
  • < 25%Below bar

What is the rule of 40 calculator?

Rule of 40 = revenue growth rate + operating profit margin. Both expressed as percentages. The combined number should be ≥ 40 for a healthy at-scale SaaS company.

Examples:

  • 80% growth + −30% margin = 50 (healthy)
  • 40% growth + 10% margin = 50 (healthy)
  • 20% growth + 30% margin = 50 (healthy)
  • 30% growth + −20% margin = 10 (below bar)

Why this matters for founders & operators

Rule of 40 captures the trade-off every SaaS company makes: spend more for growth, or be efficient. Either is fine — just not at the same time at the wrong scale.

Most relevant from $10M ARR onwards. Below that scale, growth dominates and profitability isn't a useful constraint. Investors at growth stage and beyond use Rule of 40 as a quick health check before diving into other metrics.

How to use this calculator

  1. 1
    Use trailing 12 months

    Quarter is too noisy. TTM smooths seasonality and reflects real economic position.

  2. 2
    Use revenue growth, not bookings or pipeline

    Recognized revenue is what matters. Bookings can lag revenue by 12 months in enterprise.

  3. 3
    Use operating margin, not net or gross

    Operating margin = operating income ÷ revenue. Excludes interest, tax, and one-time items.

  4. 4
    Check the trend, not just the level

    Rule of 40 going from 30 → 45 over a year is a great story. Going from 60 → 45 is concerning even at 45.

FAQ

Does Rule of 40 apply at every stage?+
Most useful from $10M ARR upward. Earlier stages dominate by growth; profitability hasn't kicked in yet.
What if I'm losing money but growing fast?+
Negative margins are fine if growth compensates. 80% growth, −30% margin = Rule of 40 = 50 — healthy.
Should I use ARR growth or revenue growth?+
Revenue growth (recognized GAAP revenue). ARR can be misleading because annual contracts get recognized monthly.
Is 40% the right threshold for non-SaaS?+
It's a SaaS-specific heuristic. Non-recurring businesses use different efficiency benchmarks (gross margin, EBITDA margin, etc.).