GuideWhale Rule of 40 Calculator
Evaluate SaaS health by balancing growth and profitability
Annual revenue growth
Revenue Growth Rate
25.0%
Profitability metrics
Use negative value for losses
Profit Margin
-10.0%
Your SaaS health metric
15.0%
Needs Improvement
Both growth and profitability need attention. Review your business model and unit economics.
Growth Rate
25.0%
Profit Margin
-10.0%
How your score is calculated
Step 1: Calculate Growth Rate
Current ARR: $1,000,000
Previous Year ARR: $800,000
Growth: $200,000
Growth Rate = ($200,000 ÷ $800,000) × 100 = 25.0%
Step 2: Calculate Profit Margin
Annual Revenue: $1,000,000
Net Income: -$100,000
Profit Margin = (-$100,000 ÷ $1,000,000) × 100 = -10.0%
Step 3: Rule of 40 Score
Formula: Growth Rate (%) + Profit Margin (%) ≥ 40%
25.0% + -10.0% = 15.0%
⚠ Below the 40% threshold - Needs improvement
Different ways to achieve Rule of 40
High-Growth, Unprofitable
50% growth + (-10%) margin = 40%
Balanced
30% growth + 15% margin = 45%
Slow-Growth, Profitable
10% growth + 35% margin = 45%
Struggling
15% growth + (-5%) margin = 10%
About the Rule of 40
The Rule of 40 is a principle that a SaaS company's combined growth rate and profit margin should equal or exceed 40%. It helps balance the tradeoff between growth and profitability.
Formula: Revenue Growth Rate (%) + Profit Margin (%) ≥ 40%
Why it matters: Early-stage companies often sacrifice profitability for growth. Mature companies sacrifice growth for profitability. The Rule of 40 provides a benchmark for evaluating whether a company has found the right balance.
Variations: Some use EBITDA margin instead of net profit margin, or use free cash flow margin. The principle remains the same: balance growth with profitability.