What is the Rule of 40 and what is a good score?
The Rule of 40 says a healthy SaaS should have its annual revenue growth rate plus its profit (EBITDA) margin add up to at least 40%. Growing 30% with a 10% margin passes; growing 20% while burning 30% fails. It is a maturity signal — early-stage startups often miss it, and that is normal.
What is rule of 40?
Rule of 40 = annual growth rate (%) + EBITDA margin (%). It balances growth against profitability: you can grow fast and burn, or grow slower and profit, as long as the two add up to 40 or more. The 40 is not a range someone measured — it is the rule’s own definition. Startkeel shows your score and tells you which side of the line you are on, but does not colour it healthy or unhealthy: grading a pre-seed founder on a scale-up yardstick would be theatre.
How to improve your Rule of 40
- Raise growth without proportionally raising burn (efficient acquisition).
- Improve gross margin and trim non-productive OpEx to lift the margin side.
- Do not sacrifice early growth just to pass the rule — it is a later-stage yardstick.
FAQ
Is the Rule of 40 relevant for pre-seed startups?
Not really. At pre-seed you are pre-scale and usually burning to grow, so you will miss 40. It becomes meaningful from Series A onward.
Which growth and margin do I use?
Annual revenue (ARR) growth rate and EBITDA margin, both as percentages, for the same period.
Related tools
- Rule of 40 Calculator — Is my growth healthy enough to keep going?
- MRR Growth Calculator — Am I growing fast enough for my size?
- See all: Growth
Related guides
See where your numbers land.
Startkeel checks your rule of 40 against these ranges and tells you if your SaaS holds up.
Last updated: June 25, 2026. Ranges based on Startkeel’s benchmark set for early-stage SaaS. For information only — not financial advice.