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
Negative if burning
Result
Rule of 40 score (EBITDA basis)
31.0
Score on free-cash-flow basis
35.1
YoY revenue growth
39.1%
EBITDA margin
-8.1%
Extra growth points needed to reach 40
9.0
Margin needed at current growth
0.9%
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One click, a permanent link with your numbers baked in.
Got your number — what next?
Pick one, it takes 20 secondsHow to use this
- 1Enter current-year revenue ($).
- 2Enter prior-year revenue ($).
- 3Enter ebitda ($) — Negative if burning.
- 4Enter free cash flow ($).
- 5Read your rule of 40 score (ebitda basis) on the right — it updates as you type.
- 6Hit Share to keep the scenario or send it to someone.
About this calculator
The Rule of 40 says a healthy software business's revenue growth rate plus its profit margin should total at least 40. It exists because growth and profitability are tradeable — burning to grow fast is fine, and growing slowly while highly profitable is fine, but doing neither well is not. This calculator computes your score on both an EBITDA and a free-cash-flow basis, shows the growth rate you'd need at your current margin to clear 40, and the margin you'd need at your current growth. It's a blunt instrument at sub-$5M revenue, where growth rates are volatile, but it's the first slide in most growth-equity diligence decks.
Worked example
Using the values the calculator loads with:
Inputs
- Current-year revenue: 6400000 $
- Prior-year revenue: 4600000 $
- EBITDA: -520000 $
- Free cash flow: -260000 $
Results
- Rule of 40 score (EBITDA basis): 31
- Score on free-cash-flow basis: 35.1
- YoY revenue growth: 39.1%
- EBITDA margin: -8.1%
- Extra growth points needed to reach 40: 9
- Margin needed at current growth: 0.9%
What each field means
Inputs
- Current-year revenue ($)
- The current-year revenue used in the calculation, measured in $. Starts at 6400000 $ so you have a working example on load.
- Prior-year revenue ($)
- The prior-year revenue used in the calculation, measured in $. Starts at 4600000 $ so you have a working example on load.
- EBITDA ($)
- Negative if burning
- Free cash flow ($)
- The free cash flow used in the calculation, measured in $. Starts at -260000 $ so you have a working example on load.
Results
- Rule of 40 score (EBITDA basis)
- Returned as a decimal number and shown as the headline result. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Score on free-cash-flow basis
- Returned as a decimal number. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- YoY revenue growth
- Returned as a percentage. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- EBITDA margin
- Returned as a percentage. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Extra growth points needed to reach 40
- Returned as a decimal number. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
- Margin needed at current growth
- Returned as a percentage. It recalculates instantly whenever you change an input, so you can compare scenarios without reloading.
FAQ
Which profit measure should I use?
EBITDA is the most commonly quoted, free cash flow is the most honest for a company with heavy capitalised development or big prepaid contracts. Report both and expect an investor to ask for the FCF version.
Does the rule apply below $10M ARR?
Loosely. Early companies routinely score 60+ on hypergrowth or deeply negative during a build year, and neither tells you much. It becomes a genuinely useful benchmark somewhere around $10-20M ARR where growth rates stabilise.
Is a score well above 40 a problem?
It can indicate underinvestment — a 25% grower at 40% margin scores 65 but may be leaving market share on the table in a land-grab category. Investors read very high scores as either an exceptional business or a timid one.
Should I use ARR or GAAP revenue?
Use GAAP revenue for the margin side so it matches the P&L, and be consistent on the growth side. Mixing ARR growth with GAAP margin overstates the score for any company with meaningful services revenue or mid-year contract starts.
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/saas-rule-of-40
<p>Source: <a href="https://www.revenuelab.fyi/toolbox/saas-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/saas-rule-of-40) (2026).