Rule of 40
Rule of 40 is a profitability metric, calculated as Revenue growth % + EBITDA margin %.
- Layer
- Metric
- Defined in
- Metric definitions
- Nearby
- 15
Authority
This definition follows Non-GAAP financial measure — SEC Regulation G — it is not a GAAP measure, so a registrant publishing it has to reconcile it to the nearest GAAP figure.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
Formula
Revenue growth % + EBITDA margin %
SaaS heuristic, not an accounting measure. Many use free-cash-flow margin instead of EBITDA margin, and year-over-year ARR growth instead of revenue growth — label which.
A metric without its definition is a number people argue about in meetings. Every metric component in this system requires one — see the rules.
Nearby in the catalog
No component names this concept outright. These are the ones in its part of the system, which is a weaker claim — but a component nothing links to is a component nobody finds.
7Dashboard & charts
Family spec- DriverModelThe inputs a forecast is built from, and what they produce.
- MetricDefinitionEvery metric requires one. Formula with values substituted.
- NonGaapReconciliationEBITDA below net income, every adjustment named.Spec
- MrrBridgeThe movement, not a single number with a percentage.Spec
- BudgetVsActualPolarity-aware, materiality-filtered, versions tracked.
- ForecastTableProjections dashed and labeled everywhere.
- CovenantMonitorThe contractual definition, not the generic one.Spec
- KpiHealthStripProvisional marking for pre-close numbers.Spec
- RevenueTrackerRevenue by stream, with mix, growth and concentration.
- ExpenseTrackerSpend by category on three bases. Polarity derived per row from the sign convention.
- ScenarioCompareScenarios side by side, all measured against the base.
- PlByDimensionThe P&L cut by department, entity or product.
Terms this one depends on
- EBITDA marginEBITDA margin is a profitability metric, calculated as EBITDA ÷ Revenue.
- RevenueInflows or enhancements of assets, or settlements of liabilities, from delivering goods or services — recognized when control transfers, not when cash arrives
- EBITDAEBITDA is a profitability metric, calculated as Net income + interest + income taxes + D&A (≈ operating income + D&A with no other non-operating items).
Also in Profitability
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
Defined in Metric definitions. This page is generated from that document, so the two cannot disagree.