SaaS Rule of 40 Calculator

Benchmark the resilience of your subscription business with the investor-favourite Rule of 40. Combine annual recurring revenue growth and profitability margin on the same time horizon to see how decisively you clear—or miss—the 40% target.

Year-over-year ARR or MRR growth expressed as a percentage (e.g., 32.4).
Operating, EBITDA, or free-cash-flow margin for the same period, entered in percent.

Educational information, not professional advice.

Examples

  • Scale-up scenario: ARR growth 32.4% with a 9% EBITDA margin ⇒ 41.4% Rule of 40 score (meets the benchmark)
  • Turnaround plan: ARR growth 18% with a −5% operating margin ⇒ 13% Rule of 40 score (efficiency focus needed)
  • Mature SaaS: ARR growth 8% with a 28% free-cash-flow margin ⇒ 36% Rule of 40 score (below investor target)

FAQ

Which margin should I use?

Most operators rely on operating, EBITDA, or free-cash-flow margins. Align with whatever definition your board prefers and document adjustments such as stock-based compensation or capitalised R&D.

Can the Rule of 40 score be negative?

Yes. Slow growth combined with heavy losses drags the score below zero and is a warning sign for investors. Use the output to quantify how much you must improve pricing, retention, or cost control.

How often should I update the numbers?

Refresh the calculation after every financial close and whenever forecasts change materially so leadership can monitor efficiency before board meetings or fundraising.

Does the Rule of 40 work for usage-based SaaS?

Yes—convert usage-driven revenue to ARR or MRR equivalents first, then apply the same growth-plus-margin formula to keep comparisons consistent across hybrid pricing models.

Additional Information

  • Rule of 40 = Growth Rate (%) + Profitability Margin (%). Use trailing-twelve-month data or forward-looking forecasts, but keep the time frame identical for both inputs.
  • Growth measured on ARR smooths seasonal spikes, while MRR growth highlights momentum—choose the metric that best reflects your go-to-market motion.
  • A score above 40% signals investors that you balance expansion with operational discipline; scores below 40% require either faster growth, leaner spend, or a mix of both.
  • Track your Rule of 40 alongside net dollar retention, gross margin, and CAC payback to tell a fuller efficiency story in board decks and fundraising updates.

Related calculators