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SaaS Rule of 40 Benchmark Calculator

Growth plus profit margin versus the Rule of 40 line, with the gap in points.

Page updated 2026-09-04.

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Default 32%.

FCF or EBITDA margin. Default 11%.

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Rule of 40 score

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Points vs 40

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Growth plus margin, measured against one line

32% year-over-year revenue growth plus an 11% profit margin sums to a Rule of 40 score of 43 -- 3 points above the 40-point benchmark, putting this company at or above the line by the classic rule of thumb.

The Rule of 40 rewards either lever equally: a company growing 40% with 0% margin scores the same 40 as one growing 10% with 30% margin. That's the entire appeal of the framework for investors comparing companies at different maturity stages -- a fast-growing, unprofitable company and a slower-growing, profitable one can both clear the same bar.

At 32% growth and 11% margin, this company is growth-led rather than margin-led -- most of its 43 points come from the growth line, meaning a deceleration in growth would hurt the score more than an equivalent-sized dip in margin.

The one input choice that changes everything

Growth % + margin %. Teams disagree on FCF vs EBITDA. Pick one and stay consistent. 'Margin' in this formula isn't standardized -- some teams use free cash flow margin, others use EBITDA margin, others use operating margin, and these can differ by 10+ points for the same company in the same quarter.

The rule is a rough screening heuristic, not a valuation model -- it says nothing about total addressable market, competitive position, or unit economics quality on its own.

For the more granular version of the profitability half of this equation, the SaaS Gross Margin Calculator and Enterprise Value / EBITDA Calculator break out margin quality separately from this combined score.

What tends to move each side of the score

Growth is typically driven by new-logo acquisition and expansion revenue -- see the Net Revenue Retention Calculator for how much of top-line growth is coming from existing customers versus new ones.

If the growth side of this score depends heavily on sales efficiency, the SaaS Magic Number Calculator shows how efficiently sales and marketing spend is converting into that growth.

Frequently Asked Questions (FAQ)

How is the score of 43 calculated?

Rule of 40 score = growth % + margin % = 32 + 11 = 43. It's a simple sum of the two percentages, with no weighting between them.

Which margin figure should I use -- EBITDA, FCF, or operating margin?

Growth % + margin %. Teams disagree on FCF vs EBITDA. Pick one and stay consistent. There's no single correct answer -- what matters most is using the same definition every time you calculate this, so the score is comparable period over period rather than shifting because the margin definition changed.

Is scoring above 40 always a sign of a healthy company?

It's a useful screening heuristic, not a full health check. A company could clear 40 with unsustainable growth funded by heavy discounting, or with margin driven by one-time cost cuts -- always look at the underlying growth and margin trends, not just the combined score.

Can a company score above 40 with 0% growth?

Only with a margin of 40% or higher on its own, since the two figures are added directly with no minimum threshold on either one individually. A very profitable but non-growing SaaS business could theoretically still clear the Rule of 40 bar.

How much does the score need to change before it matters?

Small quarter-to-quarter moves (a point or two) are often noise from timing effects. A sustained multi-quarter trend either toward or away from the 40 line is a more meaningful signal than any single period's score.

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