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.
Rule of 40 reference
| Segment / stage | Healthy | Red flag |
|---|---|---|
| Healthy | ≥ 40 | — |
| Below the bar | — | < 40 |
| Early-stage | often < 40 (expected) | — |
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.
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.