Rule Of 40 SaaS Health Check Calculator

Growing fast while burning cash, and growing slowly while comfortably profitable, can both be the right call. The Rule of 40 just checks whether you're doing enough of either.

Reading This Tool

How To Use This Calculator

Enter your annual revenue growth rate and your profit or free cash flow margin.

Add the two together. A subscription business at or above 40 combined is generally considered healthy, whether that's 40% growth with breakeven margins, or 10% growth with a 30% margin, the trade-off between growth and profitability is the entire point.

Your Inputs

Annual Revenue Growth Rate 25%

Profit Margin (Or Free Cash Flow Margin) 18%

Either EBITDA margin or free cash flow margin is commonly used for the second half of this formula, use whichever your board or investors track most closely, just be consistent from quarter to quarter.

Your Rule Of 40 Score

Combined Score

Growth Contribution

Margin Contribution

Growth + Margin vs. The Rule Of 40 Line

A simple, widely-used heuristic, not a precise valuation formula. It works best for recurring-revenue subscription businesses at meaningful scale, and is far less meaningful for a pre-revenue or very early-stage startup.

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