SaaS Rule of 40 Calculator

The ultimate metric used by Venture Capitalists. Calculate if your SaaS company strikes the perfect balance between growth and profitability.

Your Company Metrics

How much did your ARR grow compared to last year?

Your profit margin. Enter a negative number if you are burning cash.

Example Scenarios:

  • Hyper-Growth: 60% Growth, -20% Margin
  • Balanced: 30% Growth, 10% Margin
  • Cash Cow: 10% Growth, 30% Margin

The Rule of 40 Score

Combined Score
35%
Health Check
Average (Needs Improvement)

You are either growing too slow, burning too much cash, or both.

Growth Engine
45%
Margin Strength
-10%

What is the Rule of 40?

The Rule of 40 is a high-level metric used by software investors and executives to gauge the health of a SaaS business. The principle states that a successful SaaS company's growth rate and profit margin should sum up to 40% or more.

The Formula

Rule of 40 Score = Year-over-Year (YoY) Revenue Growth Rate + EBITDA Profit Margin

Why The Trade-off Exists

In the SaaS world, you can generally choose to burn cash to grow fast, or slow down growth to become highly profitable. The Rule of 40 accounts for this inverse relationship:

  • The Hyper-Growth Startup: A company growing at 60% YoY can afford to lose money (-20% margin). 60 + (-20) = 40%
  • The Balanced Company: A company growing steadily at 25% YoY should be moderately profitable (15% margin). 25 + 15 = 40%
  • The Cash Cow: A mature company that is barely growing at 5% YoY needs to be incredibly profitable (35% margin). 5 + 35 = 40%

What Does the Score Mean?

If your score is above 40%, you are in the top tier of SaaS companies. Investors will pay premium valuations for your stock. If your score is significantly below 40% (e.g., growing 10% but losing money at -10%), your business model needs urgent fixing.

Frequently Asked Questions

What is the SaaS Rule of 40?

The SaaS Rule of 40 is a free online tool designed to help you calculate your rule of 40 score to see if your startup balances growth and profit.

How much does the SaaS Rule of 40 cost?

Our SaaS Rule of 40 is 100% free to use. We do not require any signups, subscriptions, or credit cards.

Is my data safe when using this tool?

Yes. All calculations are performed locally in your web browser. We do not store or save your financial data or inputs on our servers.