Check whether your SaaS business passes the Rule of 40 — the sum of growth rate and profit margin.
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Year-over-year revenue growth percentage.
EBITDA or free cash flow margin.
Rule of 40 Score = Revenue Growth % + Profit Margin %
A score of 40 or above suggests a healthy balance of growth and profitability. High-growth companies can afford lower margins, and vice versa.
Enter values to calculate.
A SaaS heuristic: if growth rate + profit margin ≥ 40, the business is balancing growth and profitability well.
Most commonly EBITDA margin or free cash flow margin. Be consistent with your peers for comparison.
It means you may be spending too much on growth without returns, or growing too slowly for your burn. Optimize one or both.
About half of public SaaS companies score above 40. Top performers like Datadog and CrowdStrike score 60+.