Rule of 40 Calculator: SaaS Health Score
Combine revenue growth rate and EBITDA margin to measure overall SaaS business health.
Year-over-year revenue growth percentage
Can be negative for unprofitable companies
Rule of 40
20.0
Fair, needs attention; focus on either growth or margin improvement.
Below benchmark but improving. Focus on the easiest lever: if profitable, invest more in growth; if growing fast, prioritize path to profitability.
How it works
The Rule of 40 states that a healthy SaaS company should have combined revenue growth rate and EBITDA margin of at least 40%. It balances growth and profitability, since high-growth companies often lose money and profitable companies grow slower.
How to use this calculator
Follow these steps to get an accurate Rule of 40 result.
- Open the Rule of 40 Calculator.
- Enter Revenue Growth Rate (%): your year-over-year revenue growth percentage.
- Enter EBITDA Margin (%): your EBITDA divided by total revenue. Can be negative for unprofitable companies.
- Review your score. 40+ is the target. Below 20 needs urgent attention. Use the interpretation to decide whether to prioritize growth or profitability improvements.
Frequently Asked Questions
What is the Rule of 40?
The Rule of 40 is a SaaS benchmark that adds revenue growth rate (as a percentage) to EBITDA margin (as a percentage). If the sum is 40% or higher, the company is considered healthy. A company growing 30% with -10% EBITDA margin scores 20, below the threshold and needing improvement.
How do you calculate the Rule of 40?
Rule of 40 = Revenue Growth Rate (%) + EBITDA Margin (%). Revenue growth is year-over-year. EBITDA margin is EBITDA divided by total revenue. Example: 30% growth and -10% EBITDA margin = 20. The company needs either higher growth or better profitability to reach 40.
What is a good Rule of 40 score?
40 or above is the target (hence the name). 30–40 is good. 20–30 needs attention. Below 20 is concerning. Rule of 40 is most relevant for companies above $10M ARR. Early-stage companies may score lower while investing in growth, but should track progress toward 40+ over time.
How can I improve my Rule of 40?
Increase revenue growth (product improvements, expand channels, enter new markets) or improve EBITDA margin (reduce burn, improve gross margin, automate operations). The best approach depends on your stage: early companies optimize for growth, mature companies prioritize margin.
Is the Rule of 40 still relevant in 2026?
Yes, but with nuance. Post-2022, investors increasingly value profitability alongside growth. The Rule of 40 remains a useful benchmark, but the balance between growth and profit shifts with market conditions. In bear markets, profitability carries more weight; in bull markets, growth is prioritized.
What EBITDA margin should I target?
It depends on your growth rate. A 20% growth company needs 20% EBITDA margin to hit 40. A 50% growth company can afford -10% EBITDA margin. The key insight: faster growth gives you permission to burn more. Slower growth demands profitability.
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