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Rule of 40 calculator

Revenue growth plus profit margin against the 40 percent line, computed from your actual revenue and profit rather than the growth rate you remember. Nothing stored.

Last twelve months
Rule of 40 score
40
above the line
Revenue growth
50%
year over year
Profit margin
−10%
of trailing revenue
Distance to 40
+0
points of headroom

Growth of 50% plus a margin of −10% scores 40, clearing the 40 line with 0 points to spare. The useful follow-up is which half carries the score: growth-heavy passes fade as growth naturally slows, so the question is whether efficiency is arriving to replace it.

The Rule of 40 formula

growth rate  = (revenue this year − revenue last year) / revenue last year
margin       = operating profit / revenue this year
score        = growth rate % + margin %   →   pass at 40 or more

The rule exists because growth and profitability trade against each other, and judging either alone rewards the wrong things. A company burning heavily can be excellent if it grows fast enough; a slow grower can be excellent if it is genuinely profitable. Adding the two puts every company on one scale. The definition and the benchmark's source live at Rule of 40 in the glossary, and the full treatment — origin, a worked example, and the common ways companies flatter the score — is in Rule of 40: what it is, how to calculate it, and when it lies.

It is a later-stage yardstick. If you are pre-Series A, the score will either flatter you absurdly or scare you pointlessly; the ratios that actually decide things at that stage are the burn multiple and the SaaS magic number, which measure what growth costs while there is still a runway clock running.

Common questions

What is the Rule of 40?

A health test for software companies: revenue growth rate plus profit margin should add up to at least 40 percent. A company growing 55 percent at a −10 percent margin scores 45 and passes; one growing 15 percent at a 10 percent margin scores 25 and does not. Brad Feld published the rule in 2015.

How do you calculate the Rule of 40?

Add your year-over-year revenue growth rate to your profit margin, both as percentages. Rule of 40 score = revenue growth % + profit margin %. This calculator derives both from amounts: growth from two years of revenue, margin from profit divided by current revenue.

Which profit margin does the Rule of 40 use?

Convention varies: operating margin, EBITDA margin and free cash flow margin are all in circulation. The choice matters less than consistency, across time and across any companies being compared. For a private company watching its own trend, free cash flow margin is the hardest to flatter.

Does the Rule of 40 apply to early-stage startups?

Not usefully. Brad Feld framed it for companies from roughly $1M of ARR upward; below that, growth from a small base produces absurd scores that mean nothing. Early companies learn more from burn multiple and runway, which measure whether the growth is affordable at all.

The score moves every month. Most companies check it once a year.

Plainhub keeps revenue and costs current as you record them, so growth and margin are simply there when someone asks, instead of reconstructed the night before.

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