Rule of 40 Score Calculator
Add annual revenue growth and EBITDA margin, or derive the margin from revenue and EBITDA for the same fiscal year. Review the score and its numeric range.
How the Rule of 40 score works
Enter annual revenue growth and annual EBITDA margin as percentages, or switch to raw number mode and enter annual revenue and EBITDA for the same fiscal year. The score adds the two percentage point values.
In raw number mode, EBITDA margin is annual EBITDA divided by annual revenue, multiplied by 100. Revenue must be positive. Signed EBITDA is accepted, so a loss produces a negative margin. The direct percentage mode uses the same EBITDA margin basis.
The result is a numeric heuristic, not proof of operating quality or future results. The tool does not verify reported figures, compare a company with peers, or account for cash flow, customer retention, financing, or accounting adjustments.
The three display ranges are below 20, from 20 to below 40, and 40 or higher. The labels describe the score range only. They are not company grades, universal benchmarks, or advice about growth or margin targets.
Step by step
- Choose direct percentage inputs or raw revenue and EBITDA figures.
- Enter annual growth and margin figures for the same business and fiscal period.
- Review the score, its growth and margin components, and its numeric range.
Worked example
With annual revenue growth of 30% and an annual EBITDA margin of 15%, the score is 30 + 15 = 45 percentage points. The result falls in the 40 or higher numeric range.
In raw number mode, annual revenue of 1,000,000 USD and EBITDA of 150,000 USD for the same fiscal year give an EBITDA margin of 150,000 / 1,000,000 × 100 = 15%. With 30% annual growth, the score is also 45. If EBITDA is negative 200,000 USD on the same revenue, the margin is negative 20% and the score is 10.
When to use this calculator
Use this calculator to sum annual revenue growth and EBITDA margin from the same fiscal year. Raw number mode can derive the margin from annual revenue and EBITDA.
Compare the score components and check the inputs before using the result in broader business analysis. The score alone does not show operating quality or future performance.
Common input mistakes
Do not combine growth and margin from different fiscal years or parts of a business. The sum is meaningful only when both figures use the same year and business scope.
Do not enter a revenue growth fraction such as 0.30 when the field expects 30 for 30%. In raw number mode, use revenue and EBITDA from the same fiscal year, and do not use zero or negative revenue.
Formula and assumptions
Rule of 40 score = annual revenue growth percent + annual EBITDA margin percent
Raw number mode: EBITDA margin percent = EBITDA / revenue × 100, when revenue is positive
Numeric ranges: below 20, 20 to below 40, and 40 or higher
Use growth and EBITDA margin for the same business and fiscal period. The score is a heuristic sum of percentage points. It does not measure business quality, investment suitability, cash flow, or future performance.
Scope and limitations
The score adds annual revenue growth and annual EBITDA margin in percentage points. The raw number option derives EBITDA margin from annual revenue and EBITDA for the same fiscal year, and requires positive revenue. The direct option also means EBITDA margin. The calculation does not verify accounting data, select a fiscal period, or adjust for acquisitions, currency changes, one time items, cash flow, customer retention, or financing needs. The three ranges are neutral numeric descriptions. This heuristic does not prove business quality, profitability, investment suitability, or future performance.
Key terms
- Rule of 40 score
- The Rule of 40 score is annual revenue growth percentage plus annual EBITDA margin percentage, expressed as a sum of percentage points.
- EBITDA margin
- EBITDA margin is annual EBITDA divided by annual revenue for the same fiscal year, multiplied by 100.
- Score range
- The numeric ranges are descriptive groupings of the score. They do not rate a company or prescribe a target.
Related analysis
LTV to CAC Ratio pairs customer acquisition cost with modeled gross profit lifetime value. SaaS Churn Damage models revenue churn separately. Those tools answer different questions and use different periods.
Use the Rule of 40 score as a sum of two annual percentage point inputs. It does not replace cash flow, retention, or customer economics analysis.
FAQ
What does the Rule of 40 score calculate?
The score adds annual revenue growth and annual EBITDA margin, both expressed as percentages. The result is a heuristic score in percentage points. It does not establish business quality, profitability, or investment suitability.
Can I enter percentages or raw financial figures?
Enter annual revenue growth and EBITDA margin as percentages. In raw number mode, enter revenue and EBITDA for the same fiscal year. The calculator derives EBITDA margin as EBITDA divided by revenue, multiplied by 100.
Which period and margin should I use?
Use growth and margin figures for the same business and fiscal year. Growth can be negative, and EBITDA margin can also be negative. This tool does not verify statements or choose an accounting period for you.
Do the score ranges grade a company?
The displayed ranges are fixed numeric descriptions: below 20, from 20 to below 40, and 40 or higher. They are not grades, recommended targets, or proof that a company is healthy.
Does a higher score mean better business quality?
The score is growth plus margin, so either component can offset the other arithmetically. A higher result does not show whether growth is durable, margins are repeatable, or cash needs are funded.
Related tools
LTV to CAC Ratio examines acquisition cost alongside customer gross profit assumptions. SaaS Churn Damage focuses on customer loss. Neither tool validates the figures entered here.