Every figure sourced and dated, August 2026

Rule of 40 for SaaS: 2026 benchmarks, formula and what your score does to your valuation multiple

The Rule of 40 says a software company's revenue growth rate plus its profit margin should add up to at least 40. In 2026 most do not. The median B2B SaaS company scored 25 on full-year 2025 results, and across 55 publicly listed SaaS companies the median was 22.6 measured on EBITDA. Passing still pays: public SaaS companies that clear 40 on a free cash flow basis trade at a median 4.8x revenue against 2.7x for the companies that miss, a 74% premium.

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The number is easy to quote and easy to misuse, because nobody agrees on which margin goes into it. The same 55 public companies score a median 22.6 on EBITDA margin and a median 39.1 on free cash flow margin. That is a 16.5 point swing produced entirely by the choice of denominator, which is why a founder saying "we hit the Rule of 40" has told you almost nothing until they say which margin they used. The second problem is scale. The test was calibrated on venture-funded companies where growth is plentiful and margin is scarce, and at the size most SaaS businesses actually change hands it inverts, which is covered further down this page.

A Rule of 40 score means nothing until you say which margin it uses, and at the size most SaaS businesses actually sell, the test stops separating good companies from bad ones altogether.

Both margin bases, every row sourced

Rule of 40 benchmarks for 2026, by company type and margin basis

The Rule of 40 is revenue growth rate plus profit margin, both as percentages. The disagreement is over which profit margin. EBITDA margin is the stricter reading and the one most private buyers use. Free cash flow margin is the looser reading and the one most public market analysts use. Rows below state which basis produced the figure, because the two are not comparable.

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Population	Rule of 40 figure	Margin basis	What it tells a buyer	Source	As of
Private B2B SaaS, median	25	Not stated by the report	The typical private SaaS company sits 15 points under the benchmark	Aleph and Benchmarkit, 110 reporting	FY2025
Private B2B SaaS, prior year median	15	Not stated by the report	The 10 point jump was the largest single-year gain in five years of the survey	Aleph and Benchmarkit	FY2024
Private B2B SaaS, top quartile	43	Not stated by the report	Only the top quarter of private SaaS actually clears 40	Aleph and Benchmarkit	FY2025
Subscription plus usage pricing, 75th percentile	43	Not stated by the report	Usage-based pricing leads the cohort on this metric	Aleph and Benchmarkit	FY2025
Public SaaS, median	22.6	EBITDA margin	The strict reading, and the one closest to how a private buyer will look at you	Aventis Advisors, 55 companies	5 May 2026
Public SaaS, mean	22.4	EBITDA margin	Mean and median sit almost on top of each other, so the distribution is not skewed	Aventis Advisors	5 May 2026
Public SaaS, median	39.1	Free cash flow margin	The same companies, 16.5 points higher, purely from the choice of margin	Aventis Advisors	5 May 2026
Public SaaS, mean	38.0	Free cash flow margin	Close to the 40 threshold on average, which is why this basis gets quoted more	Aventis Advisors	5 May 2026
Share of public SaaS clearing 40	15% (8 of 55)	EBITDA margin	On the strict basis, passing is genuinely rare	Aventis Advisors	5 May 2026
Share of public SaaS clearing 40	46% (25 of 55)	Free cash flow margin	On the loose basis, nearly half pass	Aventis Advisors	5 May 2026
Public SaaS, mean revenue growth	15.1%	Growth component	Growth is the scarce half of the score at venture and public scale	Aventis Advisors	5 May 2026
Public SaaS, mean EBITDA margin	7.3%	Margin component	Accounting profit is thin even at multi-billion-dollar scale	Aventis Advisors	5 May 2026
Public SaaS, mean free cash flow margin	23.0%	Margin component	The 15.7 point gap against EBITDA margin is where the two bases diverge	Aventis Advisors	5 May 2026
Median EV/Revenue, companies clearing 40	4.8x	Free cash flow basis	What a passing score is associated with on price	Aventis Advisors	5 May 2026
Median EV/Revenue, companies missing 40	2.7x	Free cash flow basis	A 74% valuation premium for the passers	Aventis Advisors	5 May 2026
Multiple lift per 10 points of score	About +1.0x EV/Revenue	Free cash flow basis	Regression across 49 companies	Aventis Advisors	5 May 2026
Multiple lift per 10 points of score	About +0.7x EV/Revenue	EBITDA basis	Regression across 48 companies	Aventis Advisors	5 May 2026
Private SaaS $3M to $20M ARR, median growth	15%	Growth component	At acquisition scale the growth half of the score is small	SaaS Capital, 1,000+ companies	24 April 2026
Private SaaS $3M to $20M ARR, 90th percentile growth	42.3%	Growth component	Even the top decile of small private SaaS grows slower than it did a year earlier	SaaS Capital	24 April 2026

Private SaaS figures come from the 2026 SaaS and AI Performance Benchmarks report published jointly by Aleph and Benchmarkit on 1 June 2026, covering 342 B2B SaaS and AI-native companies of which 110 reported a Rule of 40 score, on full-year 2025 actuals. Public SaaS figures come from the Aventis Advisors study "Rule of 40 in SaaS", published 6 May 2026, covering 55 publicly listed SaaS companies measured as of 5 May 2026, with a median enterprise value of $5.8 billion. Growth figures for the $3M to $20M ARR band come from the SaaS Capital bootstrapped benchmarking post published 24 April 2026, drawing on a survey of more than 1,000 private B2B SaaS companies. The report does not state a margin basis for the private median, so this table says so rather than guessing. Ranges describe populations, not your business. This is educational, not investment advice or a valuation of any specific company.

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Does a Rule of 40 score change your price? It depends entirely on where you sell

A fair look at what each does well. Both are useful. Here is where they differ.

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Feature	Buyouts	Empire Flippers	Acquire.com
What the asking price is a multiple of	Verified ARR and MRR, with the multiple published on the listing	Average monthly net profit over the trailing twelve months	TTM revenue and profit, as stated by the seller
Is the growth rate verified before listing?	Growth and churn are verified and shown on every listing	Seller financials are vetted before a listing goes live	Seller-reported. The buyer runs the verification
Does the venue publish how growth affects the multiple?	The multiple is published per listing rather than as a formula	No published formula. The Scoreboard reports realized multiples only	No published formula or realized multiple data
Realized multiple published anywhere?	Shown per listing, not as a blended average	Yes. 26.4x monthly profit typical, 37.0x on $1M+ premium sales	No aggregate multiple data we could find
Which half of the Rule of 40 the venue rewards	Both, because recurring revenue growth and churn are on the listing	Profit, since the multiple applies to trailing monthly net profit	Varies by deal, since pricing is negotiated directly
Fee at close on a $1,000,000 sale	3% on the $1,500 tier, so $30,000	$105,000 plus $24,000, so $129,000	7% in the $250k to $1M band, so $70,000
Best suited to	AI SaaS priced off verified recurring revenue and growth	Profitable businesses priced off trailing monthly profit	Founders comfortable running their own process

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Always ask which margin the score used

This is the first question to ask any founder who quotes a Rule of 40 score, and it is the one almost nobody asks. Aventis Advisors measured the same 55 public SaaS companies twice in May 2026, once using EBITDA margin and once using free cash flow margin. On EBITDA the median score was 22.6 and only 8 companies out of 55 cleared the threshold. On free cash flow the median was 39.1 and 25 of the same 55 cleared it. Nothing about the businesses changed between the two readings. Free cash flow margin ran 23.0% on average against 7.3% for EBITDA margin, because cash flow adds back stock compensation and other non-cash charges that EBITDA does not fully strip out at these companies. If you are buying, insist on the EBITDA reading or, better, on seller discretionary earnings, since that is the number that will actually service your debt.

At acquisition scale the Rule of 40 stops discriminating

The test was designed for venture-funded software where growth is abundant and margin is scarce. At the size most SaaS businesses actually sell, that relationship inverts and the arithmetic breaks. Take a $500,000 ARR bootstrapped tool growing 10% a year at a 60% net margin. It scores 70, comfortably above a threshold that only 15% of public SaaS companies clear on an EBITDA basis. It is not worth 4.8x revenue. It will change hands somewhere around 26x to 30x monthly net profit, which is roughly 2.2x to 2.5x annual profit, so on a 60% margin about 1.3x to 1.5x annual revenue. The score passed because a small owner-operated product carries almost no overhead, not because the business has the compounding qualities the Rule of 40 was invented to detect. Below roughly $5 million in ARR, growth rate, net revenue retention and customer concentration tell you far more than a combined score does.

What passing is worth, in dollars

The link between score and price is well documented at the top of the market. Public SaaS companies clearing 40 on a free cash flow basis traded at a median 4.8x EV/Revenue in May 2026, against 2.7x for those that missed. Aventis put a slope on it too: roughly one extra turn of revenue multiple for every 10 points of free cash flow score across 49 companies, and about 0.7x per 10 points on the EBITDA basis across 48. Applying that slope is our arithmetic, not theirs, but it is a useful planning number. On a $2 million ARR business, moving from a score of 20 to a score of 40 on the EBITDA basis is worth roughly 1.4 turns, or about $2.8 million of enterprise value, assuming the relationship holds at your size. It very likely does not hold in full, since these are multi-billion-dollar public companies, so treat it as direction rather than a promise.

Good questions

Empire Flippers vs Buyouts, answered

The Rule of 40 says a software company's annual revenue growth rate plus its profit margin should total at least 40. A company growing 30% with a 10% margin scores 40 and passes. So does one growing 10% with a 30% margin. It is a shorthand for whether a business is trading growth for profit at an acceptable rate.

Revenue growth rate as a percentage plus profit margin as a percentage. Both figures are usually annual and both are usually taken from the trailing twelve months. The growth input is almost always revenue or ARR growth. The margin input is the contested part: EBITDA margin gives the strict reading, free cash flow margin gives the looser one.

Anything at or above 40 is good, but context matters more than the threshold. The median private B2B SaaS company scored 25 on full-year 2025 results and the top quartile reached 43. Among 55 public SaaS companies in May 2026, the median was 22.6 on EBITDA and 39.1 on free cash flow, so 40 is above average, not average.

Either, as long as you are consistent. Public companies use GAAP revenue growth because that is what they report. Private SaaS companies usually use ARR growth or run-rate ARR growth, since that is what they track internally. Mixing an ARR growth rate with a GAAP margin is a common error that inflates the score for fast-growing companies.

Take trailing twelve month revenue, compare it with the prior twelve months to get a growth percentage, then divide trailing profit by trailing revenue to get a margin percentage, and add the two. Decide the margin basis first and label it. For a small acquisition target, seller discretionary earnings is usually more honest than EBITDA.

Private B2B SaaS came in at a median of 25 on full-year 2025 results, up 10 points from 15 the year before, in a survey where 110 companies reported the metric. Public SaaS sat at a median 22.6 on EBITDA margin and 39.1 on free cash flow margin, measured across 55 companies on 5 May 2026.

At the top of the market, clearly. Public SaaS companies clearing 40 on a free cash flow basis traded at a median 4.8x revenue in May 2026, against 2.7x for those that missed, a 74% premium. The measured slope was about one extra turn of revenue multiple per 10 points of score across 49 companies.

No, but it has drifted away from what most companies can hit. Only 15% of 55 public SaaS companies cleared 40 on an EBITDA basis in May 2026, and the private median is 25. A benchmark that most of the market misses is still useful as a relative ranking, just not as a pass or fail gate.

Poorly. A $500,000 ARR product growing 10% at a 60% net margin scores 70 and still sells for roughly 2.2x to 2.5x annual profit. Owner-operated software carries almost no overhead, so nearly every profitable listing passes and the test loses its ability to separate strong businesses from weak ones.

Net revenue retention, gross revenue retention, customer concentration and how much of the profit depends on the founder personally. For private SaaS in the $3M to $20M ARR band, median NRR was 103% and median GRR 91% in the April 2026 SaaS Capital survey, which are far more diagnostic at that size than a combined score.

Because free cash flow margin ran 23.0% on average across public SaaS in May 2026 while EBITDA margin ran 7.3%. Free cash flow adds back non-cash charges, most significantly stock-based compensation, and benefits from customers paying annually in advance. The same company can look like it fails on one basis and passes comfortably on the other.

Subscription combined with usage-based pricing led the 2026 cohort at 43 at the 75th percentile. Usage components tend to expand revenue with customer success rather than requiring new logos, which lifts the growth half of the score without a matching rise in sales spend.

Not on its own. The relationship was measured on public companies with a median enterprise value of $5.8 billion, and it weakens sharply as deal size falls. Size, retention, revenue concentration and verified financials move small SaaS prices more than a combined score does. Valuation content here is educational, not a guaranteed sale price.

The public figures come from an Aventis Advisors study published 6 May 2026, measuring 55 companies as of 5 May 2026. The private figures come from the Aleph and Benchmarkit 2026 benchmarks report published 1 June 2026 on full-year 2025 actuals. Growth figures are from a SaaS Capital post published 24 April 2026. Check the source dates before relying on any of them.

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