Rule of 40 Visualizer
Score your SaaS health from ARR growth plus profit margin, then see where you sit on the growth-versus-profitability map next to Rule of 40 and 60.
100% client-side. Your ARR and profit inputs never leave this browser (ons-rule-of-40-inputs).
Rule of 40 = ARR growth % + profit margin on ARR. Above 40 signals a healthy balance between growth and profitability for SaaS investors.
Rule of 40 score
32.9
Acceptable for growth stage
ARR growth
42.9%
Profit margin (Free cash flow)
-10.0%
Rule of 40
32.9
Growth vs margin map
Your position on profit margin (horizontal) and ARR growth (vertical). Solid line = Rule of 40; dashed = Rule of 60.
- Current period
- Rule of 40
- Rule of 60
Inputs
Historical quarters (optional)
Up to 8 rows. YoY growth uses ARR from the same quarter one year ago.
No historical rows yet.
How this tool works
The Rule of 40 is a SaaS health test. It says a healthy software company's revenue growth rate plus profit margin should equal or exceed 40%. A company growing at 60% with a negative 25% margin scores 35 and falls short. A company growing at 30% with a 15% margin scores 45 and passes. The tool takes your inputs, calculates your combined score, places your company on a four-quadrant chart where the diagonal line at 40 separates companies that pass from those that fall short, and shows where public SaaS benchmarks typically cluster.
Worked example
Company profile: ARR: $12M. Year-over-year ARR growth: 45%. EBITDA margin: -8%. Rule of 40 Score: 45% + (-8%) = 37%. This company scores 37, which is 3 points below the threshold. It appears in the lower-right quadrant of the chart: growing fast but burning cash. To pass the Rule of 40, it could either grow 3 points faster (48% growth at the same margin) or improve margin by 3 points (-5% margin at the same growth).
Frequently asked questions
What is the Rule of 40?
A SaaS health benchmark: your annual revenue growth rate plus your EBITDA or free cash flow margin should sum to 40 or more. A company growing at 60% can run at minus 20% margin and still pass. A slower-growing company needs positive margins to compensate. Profitable public SaaS companies often score well above 40, while high-growth pre-profit companies rely almost entirely on the growth side of the equation.
Which profit margin should I use?
EBITDA margin is the most common choice for Rule of 40 calculations. Free cash flow margin is an alternative that some public market analysts prefer because it captures capital spending. Use whichever margin your board or investors track, but stay consistent when comparing across time periods.
Is the Rule of 40 still relevant?
Yes. Despite market shifts, the Rule of 40 remains a standard screening metric in SaaS investing. Bessemer's Cloud Index, Meritech Capital, and most SaaS-focused VCs reference it in their annual reports. Some analysts now use a 'Rule of X' variant that weights growth more heavily, but the original Rule of 40 is still the default benchmark.
What if my score is below 40?
A score below 40 does not mean your company is failing. It means you are currently trading off growth and profitability in a way that does not meet the benchmark. Many successful SaaS companies spend years below 40 during heavy investment phases. The score is a snapshot, not a verdict.
Can early-stage startups use this?
Yes, but the score is most meaningful for companies with at least $5M in ARR. Below that, growth rates are volatile and margins are heavily negative, which makes the combined score unreliable as a benchmark. The tool still works for directional tracking even at early stages.
What is the Rule of X?
The Rule of X is a variant proposed by Bessemer Venture Partners in 2023. It multiplies growth by a factor (typically 2x or 3x) before adding margin, giving more credit to fast-growing companies. The formula is: Score = (growth rate x weight) + margin. This tool uses the original Rule of 40 formula.