Rule of 40 calculator
The Rule of 40 says a SaaS company's revenue growth rate plus its profit margin should be at least 40%. Enter this year's and last year's revenue and a profit margin to get the score.
Your numbers
Year-over-year revenue change.
The margin you entered.
How it is calculated
Rule of 40 score = growth rate (%) + profit margin (%)
Growing 25% at a 15% margin scores 40. Growing 60% at a 20% loss also scores 40. The rule does not care which side carries the score.
Reading the result
A score of 40 or more meets the rule. It is a quick screen, not a verdict on the business: it says nothing about retention, gross margin or how growth was bought.
Watch the direction over several quarters. A score that is rising says more than a single reading.
Brad Feld, who popularized the rule, describes it for companies with at least $50 million in revenue. Below that it is a rough guide.
Common questions
Where does the rule come from?
Brad Feld wrote it up in 2015 after hearing it from a late-stage investor: growth rate plus profit should add up to at least 40%. He describes it for SaaS companies at scale, with at least $50 million in revenue.
Which margin should I use?
The rule does not fix one. Feld uses EBITDA as his baseline and checks the result against other measures such as operating income and free cash flow. Pick one, and say which one when you share the score.
Which growth rate?
Year-over-year growth. Feld suggests year-over-year growth of MRR, or total revenue checked against MRR so that one-time revenue does not distort it.
Does it apply to early-stage companies?
Only loosely. At small revenue, growth rates swing widely and margins are often deeply negative by design, so the sum says little. Treat it as a guide for companies at scale.
What if we grow 100% and lose money?
Growth of 100% with a margin of minus 50% scores 50, which passes. Growth of 20% with a margin of minus 10% scores 10, which does not.
Sources
- Brad Feld, The Rule of 40% for a healthy SaaS company (2015), read 24 September 2026
Work it out from your own data
clariBI connects Stripe and your other business apps. On Starter and up you can ask for revenue growth in plain English; the figures are calculated from your connected data.