Rule of 40 Calculator 2026
Check whether your SaaS business meets the Rule of 40 — the industry benchmark that combines revenue growth rate and EBITDA margin into a single efficiency score. A combined score of 40 or above indicates a healthy balance between growth and profitability, the standard used by SaaS investors and boards worldwide.
Key Inputs
- YoY revenue growth rate % (or ARR growth rate)
- EBITDA margin % (or FCF margin % as an alternative)
What You'll Get
- Rule of 40 score (growth rate + EBITDA margin)
- Benchmark rating: below 20 (concerning), 20–40 (acceptable), 40+ (excellent), 60+ (top quartile)
- Commentary on growth vs profitability balance
Important Notes & Benchmarks
Rule of 40 = YoY revenue growth % + EBITDA margin %. Popularised by Brad Feld and Fred Wilson in 2015. For early-stage companies (<$5M ARR), growth dominates and a 60%+ growth rate alone may compensate for negative margins. For mature SaaS (>$50M ARR), profitability matters more and investors expect both metrics to be positive. UK SaaS median Rule of 40 score was approximately 32 in 2025 across growth-stage companies.
Frequently Asked Questions
What is the Rule of 40?
The Rule of 40 is a SaaS health benchmark: revenue growth rate % + EBITDA margin % should equal or exceed 40. It balances growth and profitability — a company growing at 60% with −20% EBITDA margins scores 40 (acceptable), as does a company growing at 10% with 30% margins. It was popularised by VC Brad Feld and is now standard in SaaS board reporting, fundraising decks and M&A diligence.
Why is the Rule of 40 important for SaaS?
It balances growth and profitability into a single metric that prevents gaming one dimension at the expense of the other. A company can grow fast but burn cash unsustainably — or be profitable but growing too slowly to build a defensible market position. The Rule of 40 rewards companies that achieve both. After 2021–22 funding market correction, investors increasingly weight the Rule of 40 over pure growth rate when assessing SaaS valuations.
What is a good Rule of 40 score?
40+ is the standard benchmark; 60+ is top quartile. Companies below 20 are at risk of multiple compression and may struggle to raise at attractive valuations. Top public SaaS companies (Veeva, HubSpot, Datadog) consistently score 50–80+. For UK-based growth-stage SaaS, a score of 30–50 is competitive. Note: FCF margin can be used instead of EBITDA margin for SaaS companies that capitalise significant R&D costs.
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