Rule of 40 Calculator
Calculate your Rule of 40 score to evaluate your SaaS company's balance between growth and profitability. This widely-used benchmark helps investors and operators assess the overall health of a SaaS business.
Calculate Your Rule of 40 Score
Enter your year-over-year revenue growth as a percentage (e.g., 25 for 25%)
Enter your profit margin as a percentage (can be negative for companies investing in growth)
Which profit metric should I use?
- EBITDA margin - Most commonly used for the Rule of 40
- Free cash flow margin - Provides insight into cash generation capability
- Net profit margin - Accounts for all expenses including taxes and interest
Pro Tips for Optimizing Your Rule of 40 Score
- Balance your growth initiatives with profitability improvements rather than focusing exclusively on one dimension.
- Track your Rule of 40 score over time to identify trends and assess the impact of strategic changes.
- Compare your score with competitors and industry benchmarks to gauge your relative performance.
- Adjust your strategy based on company stage - early-stage companies typically favor growth, while mature companies often prioritize profitability.
- Consider using trailing twelve months (TTM) data to smooth out seasonal fluctuations.
- Be consistent with your profitability metric when tracking changes over time.
- Use the Rule of 40 as one of several metrics to evaluate your business, not in isolation.