Rule of 40 Calculator
Growth rate + profit margin ≥ 40%. The single benchmark public SaaS investors use to score whether a company is balancing growth and profitability. Enter revenue growth and EBITDA margin: see where you sit on the SaaS public comp distribution.
SaaS Metrics Intelligence
Growth-at-all-costs died in late 2022. Investors now reward companies that clear the Rule of 40.
Rule of 40 is the shorthand for whether a SaaS company is efficient. 100% growth at −60% EBITDA margin = 40. 40% growth at 0% margin = 40. 10% growth at 30% margin = 40. All three qualify. Below 40 and you need either faster growth or better margin. This calculator gives the number plus a verdict against the published Bessemer, Meritech, and Cloud 100 benchmarks.
Inputs
Revenue growth rate (YoY)
%Annual recurring revenue growth, trailing 12 months
EBITDA margin
%Operating income + D&A, divided by revenue. Public comps often use adjusted EBITDA.
Public SaaS peer benchmarks
60%+
Elite
Snowflake, Datadog at peak
40–60%
Great
Top-quartile SaaS public comps
20–40%
Acceptable
Median public SaaS post-2023
< 20%
Needs fixing
Growth and margin both under pressure
Weighted Rule of 40
Some investors weight growth more than margin for early-stage companies. The weighted variant: 2 × growth + margin ≥ 40 is tracked here too: useful when comparing a Series C startup to a public SaaS.
Rule of 40 score
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GROWTH + MARGIN
Weighted score (2 × growth + margin)
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WEIGHTED R40
Scenario planner
What this means
Frequently asked questions
What is the Rule of 40?
A benchmark for SaaS companies: revenue growth rate + EBITDA margin should equal 40 or more. Combines growth and profitability into one number.
Who invented the Rule of 40?
Attributed to Brad Feld in a 2015 blog post. Popularised by Bessemer Venture Partners and now standard in SaaS public comp analysis.
Does the Rule of 40 work for early-stage startups?
Imperfectly. Early-stage companies are usually heavily unprofitable to fund growth, which is correct strategy. Weighted variants (2x growth + margin) are kinder to early stage.
What growth rate should I use: ARR or revenue?
YoY ARR growth for SaaS. GAAP revenue growth works too and is what public companies report.
Should EBITDA include stock-based comp?
Convention varies. Public SaaS comps usually use adjusted EBITDA, which excludes SBC. For internal use pick one and stay consistent.
What is the Weighted Rule of 40?
Variants that weight growth more heavily, e.g. (2 × growth) + margin ≥ 40. Used by some investors for early-stage comparisons where growth matters more than margin.
How does the Rule of 40 relate to valuation?
Companies clearing 40 trade at materially higher revenue multiples. Below 40 and multiples compress fast, as the 2022 to 2023 reset showed.
What is "elite" Rule of 40?
60+ (growth + margin). Snowflake, Datadog, Veeva have hit this. Rare.
Can a company clear Rule of 40 with negative growth?
Mathematically yes with very high margins, but it defeats the purpose. For negative growth, the Rule of 40 doesn't really apply.
How often should Rule of 40 be tracked?
Quarterly on TTM basis. Monthly for internal management if growth is volatile.
Is Rule of 40 used outside SaaS?
Rarely. The combination of recurring revenue + predictable cost structure makes SaaS uniquely well-suited. For non-SaaS, use channel-specific unit economics instead.
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