What is Rule of 40?
Combined growth and profitability score.
How to calculate it
Calculate Rule of 40 as: Revenue growth rate % + Profit margin %. Pull the inputs from your connected data and track the trend over time in your dashboard.
Examples
Example 1
60% growth + (-15%) margin = 45, above 40 -- a healthy growth-vs-profit balance.
Example 2
60% revenue growth combined with a -15% margin -> 45, above the 40 threshold, so heavy reinvestment is justified by the growth rate.
Why it matters
The Rule of 40 combines revenue growth rate and profit margin into a single score that balances growth against profitability for SaaS businesses. It captures the core trade-off investors care about: fast growth can justify low profit, and high profit can justify slower growth. Using inconsistent margin definitions (EBITDA versus free cash flow) makes comparisons unreliable.
Benchmark context
40%+ is considered healthy; the higher above 40 the better, and falling below it signals the growth-profitability balance needs attention.
Common pitfalls
Using inconsistent margin definitions.
Related KPI guides
Turn KPI definitions into governed dashboards
Metricwise helps teams define metrics once, reuse them across dashboards, and ask trusted business questions in plain English.
Get Started