Rule of 40 and Rule of X calculator
Score a SaaS company on the classic Rule of 40 and on Bessemer's growth-weighted Rule of X, side by side. Everything runs in this browser tab; nothing is sent anywhere.
The formulas
- Rule of 40: ARR growth % + profit margin % ≥ 40. Margin is EBITDA, or free cash flow for mature companies.
- Weighted Rule of 40: 1.33 × growth + 0.67 × margin ≥ 40, used by some early-stage investors for companies that have not reached scale.
- Rule of X (Bessemer Venture Partners): growth × multiplier + FCF margin. The multiplier is typically 2x for private companies and 2-3x for public ones, reflecting that markets pay more for growth than for margin.
How each number is calculated, step by step
Why Rule of X exists
The Rule of 40 treats a point of growth and a point of margin as equal. Markets do not.
| Company | Growth | FCF margin | Rule of 40 | Rule of X (2x) |
|---|---|---|---|---|
| A: high growth | 35% | 5% | 40 | 75 |
| B: high profit | 5% | 35% | 40 | 45 |
Typical operating profiles
- Hyper-growth (early stage): 60% growth, -20% EBITDA margin.
- Balanced scaling (growth stage): 20% growth, 20% margin.
- Cash generation (mature): 5% growth, 35% margin.
All three score 40 on the Rule of 40. Compliant companies have historically traded around 8-15x EV/Revenue; non-compliant ones nearer 4-6x. The Rule of X has no published cutoff or multiple band, so it is shown here as a ranking, not a valuation.
From score to exit
CapStack GP turns these profiles into exit scenarios: ARR projected to exit, valued at the band multiple, then run through the cap table's liquidation preference waterfall and the fund's MOIC.
Model it in CapStackRelated: SAFE conversion calculator · Startup dilution calculator · Exit waterfall calculator
Not investment advice. Valuation bands are historical rules of thumb, not a pricing model.