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Written by MetricKit EditorialReviewed by MetricKit Editorial ReviewUpdated 2026-05-09
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Rule of 40 Calculator

Calculate the Rule of 40 score: growth rate (%) + profit margin (%).

Rule of 40 is a common SaaS heuristic: growth rate plus profit margin should be around 40% or higher. It balances growth and profitability in one number.

Prefer an explanation- Read the guide.
Need definitions- Browse the glossary.
Rule of 40: definition, formula, and how to interpret itARR growth rate: how to measure recurring momentumARR guide: meaning, formula, MRR, bookings, and growthARR vs MRR: definitions, formulas, and how to convert
 
%
Operating / EBITDA / FCF margin (choose one and stick to it).
%
 
%
Tip: you can type commas (e.g., 10,000).

Example

Using the default inputs, the result is:
45%
Revenue growth rate
35%
Profit margin
10%
Target Rule of 40 (optional)
40%

How to calculate

  1. Choose a growth rate definition (e.g., YoY revenue growth).
  2. Choose a margin definition (operating, EBITDA, or free cash flow margin).
  3. Compute Rule of 40 score = growth (%) + margin (%).
  4. Optional: add a target score to see required growth or margin.

Formula

Rule of 40 = Growth rate (%) + Profit margin (%)
  • This is a heuristic and depends on stage, market, and go-to-market motion.
  • Use consistent growth and margin definitions across time.

FAQ

Which margin should I use for Rule of 40-
Teams commonly use operating margin, EBITDA margin, or free cash flow margin. Pick one and keep it consistent so you can compare trends.
Does Rule of 40 guarantee good performance-
No. It is a rough benchmark for balancing growth and profitability. It does not replace retention, payback, and cash efficiency analysis.

Common mistakes

  • Mixing margin types across periods (EBITDA one quarter, FCF the next).
  • Comparing across businesses with very different go-to-market motions.

How to interpret

Rule of 40 tips
  • Use it as a trend metric, not a single-point verdict.
  • Pair with NRR/GRR and payback to judge growth quality and durability.
  • Compare within your segment (SMB vs enterprise) rather than across all SaaS.

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Estimate customer Lifetime Value (LTV) using ARPA, gross margin, and churn rate.
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See how gross profit LTV changes as churn and gross margin vary (simple 3x3 sensitivity).
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Compute LTV:CAC ratio and CAC payback using ARPA, gross margin, churn, and CAC.
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Estimate how many months it takes to recover CAC (months to recover CAC) using gross profit.

Quick checks

  • Keep time units consistent (monthly vs annual) across inputs and outputs.
  • Segment by cohort/channel/plan before trusting a blended average.
  • Use the related guide to avoid common definition and denominator mismatches.