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Rule of 40 Calculator

Evaluate SaaS companies by balancing top-line revenue growth against bottom-line profitability margins.

JavaScript Required: This interactive calculator requires JavaScript to function. Below is the static mathematical framework.

Inputs

YoY Revenue Growth (%)

EBITDA Margin (%)

Rule of 40 Score

The Math

The Rule of 40 is a heuristic used by software (SaaS) investors to evaluate the balance between a company's growth rate and its profitability.

Score = YoY Revenue Growth % + EBITDA Margin %

If the sum is 40% or higher, the company is considered an attractive investment and will trade at a premium revenue multiple. It acknowledges that a company can burn cash (negative margin) as long as it is growing rapidly enough to compensate.