Rule of 40 Calculator
Simply add the two. Growth of 35% with an 8% margin makes 43, three points clear of the 40 line. Read backwards, at 35% growth the margin needed to sit on the line is 5% — grow fast and you are allowed thin profits; stop growing and margin has to make up the difference. The number 40 is a venture-industry rule of thumb popularised by Brad Feld in a 2015 blog post.
Your numbers
Growth plus margin
43%
Points
3%
Margin needed
5%
What it means
Growth of 35% plus a 8% margin makes 43%, clearing the 40 line by 3 points.
Formula
Growth plus margin = Revenue growth + Margin
Check that both figures use the same ruler. Putting EBITDA margin, operating margin or free-cash-flow margin in the second slot swings the sum by ten points or more. Growth differs too between a year-on-year rate and an annualised recent quarter. At small revenue the growth rate is easy to inflate, which flatters the sum.
What to enter
| Input | Default | Accepted range |
|---|---|---|
| Revenue growth (%)Revenue growth against last year; an annualised quarter differs a lot. | 35 | No limit |
| Margin (%)Profit divided by the sale price. It can never exceed 100%. | 8 | No limit |
| The line (%)The line you measure against; the usual 40 is a venture rule of thumb. | 40 | 1 ~ 100 |
Step by step
Quick reference table
Results when only Revenue growth (%) changes and everything else stays put.
| Revenue growth (%) | Growth plus margin (%) | Points (%) | Margin needed (%) |
|---|---|---|---|
| 17.5 | 25.5 | -14.5 | 22.5 |
| 26.3 | 34.3 | -5.7 | 13.7 |
| 35 | 43 | 3 | 5 |
| 52.5 | 60.5 | 20.5 | -12.5 |
| 70 | 78 | 38 | -30 |
What each result means
| Result | At default values |
|---|---|
| Growth plus margin (%)Growth plus margin, simply added; check both use the same ruler. | 43 |
| Points (%)The gap between two percentages, read in points rather than percent. | 3 |
| Margin needed (%)The margin it would take to sit on the line at that growth rate. | 5 |
Common mistakes
Check that both figures use the same ruler. Putting EBITDA margin, operating margin or free-cash-flow margin in the second slot swings the sum by ten points or more. Growth differs too between a year-on-year rate and an annualised recent quarter. At small revenue the growth rate is easy to inflate, which flatters the sum.
Glossary
- Revenue growth
- Revenue growth against last year; an annualised quarter differs a lot.
- Margin
- Profit divided by the sale price. It can never exceed 100%.
- The line
- The line you measure against; the usual 40 is a venture rule of thumb.
- Growth plus margin
- Growth plus margin, simply added; check both use the same ruler.
- Points
- The gap between two percentages, read in points rather than percent.
- Margin needed
- The margin it would take to sit on the line at that growth rate.
Frequently asked questions
Q. How is Rule of 40 Calculator calculated?
Growth plus margin = Revenue growth + Margin — Simply add the two. Growth of 35% with an 8% margin makes 43, three points clear of the 40 line. Read backwards, at 35% growth the margin needed to sit on the line is 5% — grow fast and you are allowed thin profits; stop growing and margin has to make up the difference. The number 40 is a venture-industry rule of thumb popularised by Brad Feld in a 2015 blog post.
Q. Can you walk through an example?
With Revenue growth 35%, Margin 8%, The line 40%, the answer is Growth plus margin 43%.
Q. What do I need to enter?
Enter Revenue growth, Margin, The line. The result recalculates as you type, and an empty box counts as zero.
Q. How much does the answer move if I change a number?
Changing only Revenue growth (%) moves the answer to Revenue growth (%) 17.5 → Growth plus margin (%) 25.5 and Revenue growth (%) 70 → Growth plus margin (%) 78. The table below lays out five steps.
Q. How are the numbers rounded?
Money is shown to the nearest whole unit, percentages to one decimal place and everything else to two. What you see is rounded; the calculation itself carries the unrounded value forward.
Q. Anything to watch out for?
Check that both figures use the same ruler. Putting EBITDA margin, operating margin or free-cash-flow margin in the second slot swings the sum by ten points or more. Growth differs too between a year-on-year rate and an annualised recent quarter. At small revenue the growth rate is easy to inflate, which flatters the sum.
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