Definition
A combined efficiency benchmark summing a SaaS company's growth rate and profit margin.
Formula
YoY Revenue Growth % + Profit Margin %
How to measure
Add the year-over-year revenue growth rate to the current profit margin (which may be negative), expressed as a single percentage.
Why track it
A score above roughly 40% is a widely used signal that a company is balancing growth and efficiency in a healthy way.
Example
A company growing 55% a year with a -10% margin scores 45 on the rule of 40.
FAQ
- What is Rule of 40 Score?
- A combined efficiency benchmark summing a SaaS company's growth rate and profit margin.
- How do you calculate Rule of 40 Score?
- YoY Revenue Growth % + Profit Margin %
- Why track Rule of 40 Score?
- A score above roughly 40% is a widely used signal that a company is balancing growth and efficiency in a healthy way.