The Rule of 50 adds a company’s annual revenue growth rate to its EBITDA margin. A combined score of 50% or more is a management and investor shorthand for balancing growth with profitability—not a complete measure of organizational success or a universal target for every business.
How to calculate the Rule of 50
In the formulation described by Joe Krivickas, calculate the metric this way:
Annual revenue growth percentage + EBITDA margin percentage = Rule of 50 score
For example, a company growing revenue by 30% annually with an EBITDA margin of 20% scores 50%. That is an illustration of the formula, not a reported company result. Krivickas’s 2015 article describes 50 or more as an “elite” level; that is the author’s characterization, not a guarantee of success or an independently established market-wide benchmark. Read Krivickas’s explanation.
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Be precise about the inputs
EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA margin is EBITDA divided by revenue, expressed as a percentage. Keep the growth rate and margin on a consistent period and use the same reporting basis when comparing companies. Say whether EBITDA is reported or adjusted; changing the profit measure changes the result.
Some explainers use free-cash-flow margin instead of EBITDA margin. These are not interchangeable: free cash flow reflects cash generation after capital expenditures, while EBITDA is an earnings measure before several expenses. Identify the measure used rather than presenting a score without its inputs. SaaS Capital discusses Rule of 40 calculations and margin choices.
What the score tells you—and what it hides
The score compresses growth and profitability into one number, making the tradeoff easier to discuss. It does not show how much came from growth versus margin. A business with 40% growth and a 10% margin, for instance, has the same arithmetic total as one with 10% growth and a 40% margin, but those profiles may have very different implications for strategy, cash needs and investor expectations.
Insight Partners describes the Rule of 40 as a common SaaS shorthand and notes that some investors raise the target to 50 or 60. That variation is one reason not to treat 50 as a universal pass/fail line or as a settled replacement for the Rule of 40. The appropriate comparison depends on sector, company stage, time period and the profit measure used. Insight Partners explains the Rule of 40 and its limitations.
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How to use it in an organization
Use the metric as a shared prompt for decisions, not as a standalone verdict. Krivickas recommends leadership support, explaining to employees how their work connects to the plan, and communicating performance and intermediate benchmarks transparently. These are his implementation recommendations, not proof that adopting the metric causes better results.
- Agree on the calculation. Set the revenue-growth period, EBITDA definition, and whether the figures are reported or adjusted. Document the choices so the score can be reproduced.
- Set a context-specific target. Decide whether 50 is a useful internal aspiration given the company’s stage and priorities. Do not assume it is an industry rule.
- Show the components beside the total. Report growth and margin separately, along with the combined score, so a change in the total does not obscure what drove it.
- Connect the measure to work. Explain which decisions or responsibilities can influence growth, profitability, or both. Avoid implying that every team can directly control the company-wide result.
- Track progress against interim benchmarks. Share the measurement period and progress openly, then investigate the underlying drivers rather than rewarding the aggregate number alone.
How to interpret company examples
Qualys’s investor presentation compares selected security and SaaS peers using 2025 revenue growth plus adjusted EBITDA margin. It shows Qualys at 57% and includes a Rule of 40 reference line. This is an illustration from one company’s selected peer comparison, not a representative market-wide benchmark or evidence that every organization should target 50. See Qualys investor presentations.
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When comparing any two scores, check the growth period, margin definition, adjustments, company context and peer-selection method. A headline total is meaningful only when those inputs are comparable.
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