Rule of 40 Calculator
Test whether growth rate plus profit margin clears 40%.
RULE OF 40 SCORE
35%
Below 40 — needs work
Rule of 40 = growth rate % + profit margin %. A combined score of 40% or higher is considered healthy.
What is Rule of 40?
The Rule of 40 says a healthy software company's revenue growth rate plus its profit margin should add up to at least 40%. It balances growth against profitability in a single number.
Rule of 40 = growth rate % + profit margin %
How to read your result
- A combined score of 40% or more is considered healthy.
- High-growth companies can run at a loss and still pass; profitable ones can grow slower.
- Use a consistent margin definition (often EBITDA or free-cash-flow margin).
- It's a quick gut-check, not a substitute for full financial analysis.
Frequently asked questions
What is the Rule of 40?
A SaaS benchmark stating that a company's growth rate plus its profit margin should sum to at least 40%. It balances growth and profitability.
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