Rule of 40 FAQ
Quick answers to the most common questions about Rule of 40. For the full definition, formula, and benchmarks, see the Rule of 40 glossary page.
What is the Rule of 40?
The Rule of 40 is a SaaS health benchmark: revenue growth rate plus profit margin should be at least 40%. A company growing 25% with a 15% margin scores exactly 40%.
How do you calculate the Rule of 40?
Add your year-over-year revenue growth rate to your profit margin (commonly free cash flow margin). Growth 30% + margin 5% = a Rule of 40 score of 35%.
Is the Rule of 40 a good benchmark for early-stage SaaS?
It matters most from growth stage onward. Early-stage companies can score well on growth alone, while mature companies need profit margin to contribute.
Keep exploring Rule of 40
The Rule of 40 is a SaaS health benchmark stating that a company's revenue growth rate plus its profit margin should add up to 40% or more. Read the full Rule of 40 definition for formulas, benchmarks, and common mistakes.