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Benchmark your SaaS growth and profitability with the Rule of 40 Calculator.
The Rule of 40 states that the sum of a company's revenue growth rate and profitability margin should be at least 40%. It’s a benchmark used to determine whether a SaaS company is performing well.
This rule is a favorite among investors because it simplifies the complex balancing act between growth and profit. A score of 40 or higher signals that your business is both sustainable and attractive for long-term investment.
This is the percentage increase in revenue over a specific period, usually calculated annually.
Profit margin refers to the percentage of revenue left after all expenses are deducted.
The formula is straightforward:
Rule of 40 = Revenue Growth Rate (%) + EBITDA Margin (%)
For instance, if your revenue growth rate is 25% and your profitability margin is 20%, your Rule of 40 score would be 45%—a clear winner!
If the sum is 40% or higher, your company is considered to be in a strong position.
This measures how fast your company’s revenue is increasing over time. High growth indicates a thriving business.
Profitability margin reflects how much profit you’re making as a percentage of your revenue. This is essential for sustainability.
The Rule of 40 offers a snapshot of your company’s performance, helping you understand whether you're scaling sustainably.
For SaaS companies, it provides a common ground for comparison, making it easier to gauge where you stand in the industry.
Investors love this metric because it quickly highlights if your business is worth their time and money.
The calculator spits out your Rule of 40 score. A score of 40 or above? You’re golden. Below that? Time to strategize!
Imagine a SaaS company has:
Calculation:
30% (Revenue Growth) + 12% (Profit Margin) = 42%
A Rule of 40 score of 42% indicates the company is performing well and balancing growth with profitability.
Why crunch numbers manually when a calculator can do it faster and error-free?
Armed with accurate data, you can make smarter decisions to improve your business.
A SaaS company with 35% revenue growth and 10% profitability margin scores 45%. It’s a great example of balanced growth.
Another company with 10% growth but a 35% margin also scores 45%, proving there’s more than one way to win.
Focus on customer acquisition, product innovation, and market expansion to drive growth.
Optimize operations, reduce churn, and manage costs effectively to boost margins.
The Rule of 40 works best for SaaS but might not suit other industries.
Context matters. A high score doesn’t always mean a business is thriving, and a low score isn’t necessarily a death sentence.
The Rule of 40 is a high-level metric and doesn’t dive into specifics like customer churn or acquisition costs.
Showcasing a strong Rule of 40 score can attract potential investors.
Use it to assess and adjust your strategies.
Helps prioritize initiatives that will positively impact your growth or profitability.
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This metric is designed specifically for SaaS businesses looking to scale sustainably.
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They use it to identify promising companies for investment.
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Helps leadership teams make data-driven decisions.
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