Rule of 40 Calculator
Add revenue growth and profit margin to see whether a subscription business clears the 40 benchmark.
Quick answer
The Rule of 40 score is revenue growth rate plus profit margin, in percentage points. A subscription company is considered healthy at 40 or more, since growth and profitability can offset each other.
Rule of 40 Calculator
Rule of 40 Score
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Gap to 40
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Growth Needed at This Margin
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Growth, margin and score (%)
Growth Needed to Reach 40
| Profit margin | Growth needed for 40 |
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Assumptions & method
- Score = revenue growth % + profit margin % (EBITDA or free cash flow, as selected).
- Pass means score ≥ 40; the threshold is a rule of thumb, not a standard.
- Growth is a year-over-year rate; margin is the same period's margin as a percentage of revenue.
- Growth needed = 40 − margin, shown in percentage points.
- Not included: company size, stage, one-off items or differences in how companies define EBITDA and free cash flow.
Results are estimates based on the figures you enter. They are not guarantees and not financial advice.
What the Rule of 40 measures
The Rule of 40 combines two things investors care about in subscription software: how fast revenue is growing and how much profit the business makes. Add the year-over-year revenue growth rate to a profit margin, either EBITDA or free cash flow, and compare the total with 40. A company can reach the threshold by growing quickly while losing money, or by growing slowly while earning healthy margins. The score is a rough health check rather than a valuation, and acceptable levels vary with company size and stage. The table below shows the growth required at different margins to reach exactly 40.