# Rule of 40

> Rule of 40 is a profitability metric, calculated as 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.

Source: https://lopifi.com/glossary/rule-of-40
Part of: Lopifi — US GAAP books on autopilot, reviewed by a CPA (https://lopifi.com)

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**What is rule of 40?** Rule of 40 is a profitability metric, calculated as Revenue growth % + EBITDA margin %.

## Formula

`Revenue growth % + EBITDA margin %`

## Note

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

- **Category:** Profitability
- **Specified in:** [Metric definitions](https://lopifi.com/md/docs/domain/10-metrics)
- **Related:** ebitda-margin, revenue, ebitda