Rule of 40 Calculator
The Rule of 40 says a healthy software company's growth rate plus profit margin should be at least 40%. It lets fast-growing loss-makers and slow profitable firms be compared.
Your numbers
RESULT
Rule of 40 score
45%
- Headroom above 40
- 5%
Passes the Rule of 40.
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- Rule of 40 score = Revenue growth % + Profit margin %
- Pass if score ≥ 40
Frequently asked questions
Which margin should I use?
Most investors use EBITDA margin or free-cash-flow margin. Be consistent and say which one you used.
Does the Rule of 40 apply to early-stage startups?
Not really — it is a benchmark for scaled SaaS (roughly $10M+ ARR). Earlier, growth and burn multiple matter more.
Is 40 a hard line?
No, it is a rule of thumb. Public markets tend to reward companies above 40 with higher revenue multiples.
Results are estimates for planning and education — not financial, legal or tax advice.
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