Rule of 40 Calculator
Calculate the Rule of 40 score for SaaS: growth rate + free cash flow margin should equal 40+. The single most-watched SaaS health metric.
| Revenue Growth | — |
| FCF Margin | — |
| Rule of 40 Score | — |
| Bessemer Cloud 100 Median | — |
| Public SaaS Median 2024 | — |
The Rule of 40 is the gold-standard SaaS health metric, coined by Brad Feld in 2015. It states that a SaaS company's YoY revenue growth percentage plus free cash flow margin percentage should equal at least 40. A startup growing 80% with -40% FCF margin is healthy (80-40=40). A mature SaaS growing 15% with 25% FCF margin is healthy (15+25=40).
How to Calculate
Score = YoY Revenue Growth % + FCF Margin %. Use trailing 12-month numbers, not quarterly. FCF margin = Free Cash Flow ÷ Revenue. For private companies, EBITDA margin can substitute (Adjusted EBITDA, excluding stock-based comp). Public SaaS median 2024: 28 (below threshold post-correction). Bessemer Cloud 100 median: 45-55.
Why Investors Use It
Rule of 40 captures the growth-vs-profitability tradeoff in one number. High-growth startups can burn cash if growth justifies it. Mature companies must convert growth into profit. Investors penalize companies failing Rule of 40 — Vista, Thoma Bravo, and growth-stage VCs all use it as primary screen alongside NDR > 110%.
Levers to Improve
Growth lever: net-new ARR, expansion revenue (upsell/cross-sell), reduced gross churn. Margin lever: G&A discipline (lower than 15% of revenue at scale), sales efficiency (LTV/CAC > 3), R&D scaling (under 30% at $50M+ ARR), gross margin protection (75%+ for SaaS).
Last updated May 2026. Sources: Brad Feld — Rule of 40, Bessemer Cloud Index.