Free tool

Rule of 40 calculator

Add your growth rate and profit margin. If they sum to 40% or more, you're balancing growth and profitability the way healthy SaaS companies do.

Use year-over-year revenue growth and an operating or free-cash-flow margin. Most relevant at roughly $1M+ ARR.

Your Rule of 40 score

45%

Passes

Against the 40 threshold

40 threshold 0 80

You're 5 points over the bar — a healthy balance of growth and profitability.

Track growth and margin on one spine See live SaaS reporting

Beyond the number

The Rule of 40 is a scoreboard — the spine is the field.

Growth you can attribute. When acquisition and revenue share a spine, you know which work and channels moved the growth half of the equation.

Margin you can see. Cloud and AI cost on the same record as revenue makes the margin half real — not a quarter-end finance export.

One number, always current. A connected spine recomputes growth and margin from live data, so the scoreboard isn't a slide you rebuild each board meeting.

FAQ

Rule of 40 questions

What is the Rule of 40?
The Rule of 40 says a healthy SaaS company's revenue growth rate plus its profit margin should be at least 40%. It's a single check on the trade-off between growth and profitability — you can grow fast and burn, or grow slower and profit, as long as the two sum to 40 or more.

How do I calculate the Rule of 40?
Add your growth rate and your profit margin (both as percentages). For example, 30% growth + 15% margin = 45%, which passes the 40% bar.

Which growth and margin should I use?
Most use year-over-year revenue growth and an operating or free-cash-flow margin. Margin can be negative for fast-growing, unprofitable companies — that's expected; the rule just asks growth to make up the difference.

Is the Rule of 40 a hard target?
It's a benchmark, not a law — most useful at scale (roughly $1M+ ARR). Very early companies routinely miss it while investing in growth. Treat it as one health signal among unit economics, retention, and runway.

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