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Rule of 40 Calculator

Add your revenue growth rate to your profit margin and see how far the total sits above or below 40%, plus the margin you need at today's growth.

  • Free
  • No sign-up to try
  • Works as you type

Rule of 40

Rule of 40 score

35.0%

Above (+) or below (−) 40

−5.0 pts

Margin needed at this growth

10.0%

  • Score = revenue growth % + profit margin %.
  • Distance from 40 = score − 40.
  • Margin needed = 40 − growth %.

Free, no sign-up to try. Save it as a live calculator you can share; an estimate from the numbers you enter, not financial advice. Check the result against your own records before you rely on it.

See a worked example

How it works

How the Rule of 40 Calculator works

  1. 1

    Enter your numbers

    Every result updates as you type, with the formula shown under it.

  2. 2

    Check the method

    See how each number is worked out and what it assumes.

  3. 3

    Save it as a Room

    Share a live calculator: others can change the numbers and see the result update.

Worked example

What it makes

Example inputs

Revenue growth, year on year
30 %
Profit margin (EBITDA or free cash flow)
5 %

Results

Rule of 40 score
35.0%
Above (+) or below (−) 40
−5.0 pts
Margin needed at this growth
10.0%

How it's calculated

  • Score = revenue growth % + profit margin %.
  • Distance from 40 = score − 40.
  • Margin needed = 40 − growth %.
  • Assumes: Growth and margin cover the same 12 months.
  • Assumes: Pick one margin measure (EBITDA or free cash flow) and keep it the same when you compare.

An estimate from the numbers you enter, not financial advice. Check the result against your own records before you rely on it.

Who it's for

Who uses it

  • SaaS CEOs

    Show the board the trade-off between growth and profit.

  • CFOs

    Test what a cost cut or a growth push does to the score.

  • Investors

    Compare companies at different stages on one simple measure.

Good to know

What to consider

  • Use the same 12 months for growth and margin.
  • EBITDA and free cash flow margin give different scores: pick one and stick to it.
  • It is a rough benchmark for software companies, not a pass mark.

Questions

About the Rule of 40 Calculator

Which profit margin should I use?

Most people use EBITDA margin or free cash flow margin. Free cash flow is stricter because it counts cash actually spent. Whichever you choose, use it every time so the scores compare.

Can I share the calculator with my team or a client?

Yes. The Room keeps the calculator live: anyone with the link can change the numbers and see the result update, with the method and assumptions on the same page.

Make your calculator now

Free, no sign-up to try. It becomes a Room you can edit, publish and share.

Create my calculator

Related

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  • Profit Margin CalculatorWork out gross margin, net profit and net margin from revenue and costs.
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