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Rule of 40 / Rule of X Calculator

Rule of 40 = ARR growth % + EBITDA margin %. Rule of X weights growth more heavily: growth × 2 + FCF margin (factor of 2 is typical in 2024–2026 when growth creates more enterprise value per point than margin). Best-in-class: > 60 (Bessemer 2024). Below 40 = below threshold.

directional Last updated 2026-06-18

Formulas

Rule of 40 estimator

R_{40} = ARR Growth% + EBITDA Margin%

Reads as: the sum of revenue growth rate and profitability margin should exceed 40 for a healthy SaaS business.

Rule of X estimator

R o X = (ARR Growth \times 2) + FCF Margin

Reads as: growth is weighted 2× because incremental growth creates more enterprise value than incremental margin in 2024–2026 markets. Factor varies by market regime; 2 is typical for 2024–2026 (Bessemer).

Calculator

ARR growth rate (%) FCF margin (%) EBITDA margin (%)

Rule of 40

growth + EBITDA margin

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Rule of X

growth × 2 + FCF margin

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Benchmarks

Score	Rule of 40	Rule of X
> 60	Best-in-class	Best-in-class
40–60	Good — above threshold	Good
< 40	Below threshold	Below threshold

Source: Bessemer Venture Partners State of the Cloud 2024 · OpenView Rule of X research 2023

Why two metrics?

Rule of 40 treats a point of growth and a point of margin as equivalent. Rule of X (Bessemer 2023) adjusts for the empirical observation that in high-growth regimes, each percentage point of additional ARR growth generates roughly 2× the enterprise value uplift of a percentage point of FCF margin. This is because growth compounds on itself, while margin improvements are largely one-time. At very low growth rates (< 20%), R40 and Rule of X converge. The factor (2) is a market-condition estimate and varies: in capital-efficient environments it may fall to 1.5; in high-multiple markets it can reach 2.5.