a simple growth-and-profitability benchmark used mainly for SaaS and high-growth software/data companies. It is calculated as:
Revenue Growth Rate (%) + Profit Margin (%) ≥ 40
Profit margin is typically Adjusted EBITDA margin (or sometimes free-cash-flow margin).
A company “achieves” or “meets” the Rule of 40a simple growth-and-profitability benchmark used mainly for SaaS and high-growth software/data companies. It is calculated as:
Revenue Growth Rate (%) + Profit Margin (%) ≥ 40 Profit margin is typically Adjusted EBITDA margin (or sometimes free-cash-flow margin).
A company “achieves” or “meets” the Rule of 40 when the sum of its year-over-year revenue growth percentage and its adjusted EBITDA margin percentage equals or exceeds 40. Example: If a company grows revenue 30% and delivers a 12% adjusted EBITDA margin, the Rule of 40 score is 42 → it passes. It is used as a quick way to judge whether a growth company is balancing rapid expansion with improving operating efficiency. More when the sum of its year-over-year revenue growth percentage and its adjusted EBITDA margin percentage equals or exceeds 40.
Example:
If a company grows revenue 30% and delivers a 12% adjusted EBITDA margin, the Rule of 40a simple growth-and-profitability benchmark used mainly for SaaS and high-growth software/data companies. It is calculated as:
Revenue Growth Rate (%) + Profit Margin (%) ≥ 40 Profit margin is typically Adjusted EBITDA margin (or sometimes free-cash-flow margin).
A company “achieves” or “meets” the Rule of 40 when the sum of its year-over-year revenue growth percentage and its adjusted EBITDA margin percentage equals or exceeds 40. Example: If a company grows revenue 30% and delivers a 12% adjusted EBITDA margin, the Rule of 40 score is 42 → it passes. It is used as a quick way to judge whether a growth company is balancing rapid expansion with improving operating efficiency. More score is 42 → it passes. It is used as a quick way to judge whether a growth company is balancing rapid expansion with improving operating efficiency.
