Rex says
Money math without the spreadsheet headache. Plug in your numbers and I'll show you exactly where the dollars land.
Try a scenario
Click to load — tweak from there.Inputs
Result
Rule of 40 Score
43
Assessment
Healthy
Growth rate component
35.0%
Profit margin component
8.0%
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How to use this
- 1Enter annual revenue growth rate (%).
- 2Enter ebitda or fcf margin (%).
- 3Read your rule of 40 score on the right — it updates as you type.
- 4Hit Share to keep the scenario or send it to someone.
About this calculator
The Rule of 40 says a healthy SaaS company's revenue growth rate plus profit margin (usually EBITDA margin or free cash flow margin) should add up to 40% or more. It's a shorthand that lets investors compare a fast-growing, unprofitable company against a slower-growing, profitable one on roughly equal footing — 60% growth with -20% margin scores the same 40 as 10% growth with 30% margin, even though those are very different businesses operationally. It's most useful as a single sanity-check number, not a precise valuation tool: companies scoring well above 40 (60-80+) often command premium multiples, while companies persistently below 40 face multiple compression regardless of which side of the equation (growth or margin) is dragging the score down. The rule breaks down for very early-stage companies (under a few million ARR) where growth rates are naturally triple-digit and margin is deeply negative by design, and for very large, mature companies where 40% combined is a much higher bar relative to their size than it is for a mid-stage company.
Worked example
Using the values the calculator loads with:
Inputs
- Annual revenue growth rate: 35 %
- EBITDA or FCF margin: 8 %
Results
- Rule of 40 Score: 43
- Assessment: Healthy
- Growth rate component: 35.0%
- Profit margin component: 8.0%
What each field means
Inputs
- Annual revenue growth rate (%)
- The annual revenue growth rate used in the calculation, measured in %. Starts at 35 % so you have a working example on load. Accepted range: -50–300 %.
- EBITDA or FCF margin (%)
- The ebitda or fcf margin used in the calculation, measured in %. Starts at 8 % so you have a working example on load. Accepted range: -200–60 %.
Results
- Rule of 40 Score
- Returned as a whole number and shown as the headline result. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Assessment
- Returned as a plain value. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Growth rate component
- Returned as a percentage. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Profit margin component
- Returned as a percentage. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
FAQ
Should I use EBITDA margin or free cash flow margin?
Either is used in practice; FCF margin is generally considered the more rigorous version since it accounts for capex and working capital changes that EBITDA ignores. Be consistent about which one you use over time and disclose which you're reporting, since they can differ by 5-15 points for the same company.
Is a Rule of 40 score of exactly 40 good?
It's the baseline healthy threshold, not a great score by itself. Top-quartile public SaaS companies often score 50-70+. Treat 40 as 'acceptable, keep watching' rather than 'target achieved and done' — investors reward scores meaningfully above 40, especially when driven by margin rather than growth alone.
Does it matter whether growth or margin drives the score?
Increasingly yes to investors — since 2022, the market has rewarded margin-driven Rule of 40 scores more than pure growth-driven ones, reflecting a broader shift toward valuing capital efficiency over growth-at-any-cost. Two companies at the same score of 40 can get very different multiples depending on the mix.
Does Rule of 40 work for early-stage startups?
Not well below roughly $5-10M ARR — growth rates are naturally huge and volatile off a small base while margins are deeply negative by design as the company invests ahead of revenue. It becomes a more meaningful benchmark once a company has enough scale that both numbers stabilize.
Accuracy and limitations
- Results are estimates before tax, fees, and inflation unless an input explicitly covers them.
- Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.
- This is educational maths, not financial advice. Check anything contractual with the lender or your accountant.
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Cite this calculator
Writing about this topic? Grab a citation — every link helps keep these tools free.
RevenueLab. (2026). Rule of 40 Calculator. Retrieved from https://www.revenuelab.fyi/toolbox/rule-of-40
<p>Source: <a href="https://www.revenuelab.fyi/toolbox/rule-of-40" target="_blank" rel="noopener">Rule of 40 Calculator — RevenueLab</a> (2026).</p>
Source: [Rule of 40 Calculator — RevenueLab](https://www.revenuelab.fyi/toolbox/rule-of-40) (2026).