Rule of 40 calculator

Rule of 40 = revenue growth % + profit margin %. ≥ 40 = healthy. The trade-off: it’s okay to lose money if you’re growing fast, but only up to the limit set by the rule.

Rule of 40 score
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Growth contribution
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Profit contribution
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Above / below 40
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Tier
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Public SaaS benchmarks

  • > 60: elite (Snowflake, Datadog at IPO).
  • 40–60: healthy — most great public SaaS.
  • 20–40: below par — multiples compress.
  • < 20: growth + profit not sustainable; investors discount valuation heavily.

Variants:

  • EBITDA margin is the original Brad Feld formulation.
  • FCF margin is harsher — what cash actually leaves the business.
  • Operating margin sits in between.