Add your revenue growth rate and profit margin to see your Rule of 40 score and whether your business clears the 40% benchmark.
The Rule of 40 is a simple health check for software and subscription businesses. It says that a company's revenue growth rate plus its profit margin should add up to at least 40%. It captures the core trade-off every growth business faces: you can grow fast, be profitable, or balance the two — but the combination should clear the bar.
Score = Revenue Growth Rate (%) + Profit Margin (%). A company growing 30% with a 15% margin scores 45 and passes. One growing 50% while burning cash at a −15% margin still scores 35 and falls short. Either lever can carry the score, which is why hyper-growth startups with thin or negative margins can still qualify.
There is no single standard — different analysts use EBITDA margin, free-cash-flow margin, or operating margin. The key is consistency: use the same definition over time and when comparing companies. This calculator accepts whichever margin figure you enter, so pick one and stick with it.
Tip: The Rule of 40 becomes most meaningful once a company reaches scale (roughly $1M+ in revenue). Very early startups routinely break it while investing heavily in growth, and that can be perfectly healthy.
A score above 40 signals an efficient balance of growth and profitability that investors reward with higher valuation multiples. Below 40, look at which lever is lagging: if growth is strong but margins are deeply negative, spending may be inefficient; if margins are healthy but growth has stalled, the business may need to reinvest. The chart compares your score to the 40% line at a glance.