Efficiency
Rule of 40 calculator
Enter your annual revenue growth rate and your profit margin. The calculator adds them and shows where you stand against 40.
Rule of 40 score
43%
- Against 40
- +3 points
How to read the result
The rule says a healthy software company's growth rate and profit margin should add up to at least 40%. It allows a trade: fast growth can excuse losses, and slow growth has to be paid for with profit. It is a rule of thumb for companies past the early stage, and it means little below a few million in revenue.
The formula
EfficiencyRule of 40 score = annual revenue growth rate + profit margin.
Frequently asked questions
EBITDA margin and free cash flow margin are both common. Pick one and keep to it, and say which when you report the score.
Not usefully. Early growth rates are high and volatile, so nearly everyone passes or the number swings wildly. Burn multiple is a better early measure.
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