SaaS Rule of 40, Magic Number and Burn Multiple Calculator
Three quick efficiency checks for a software or subscription company: the Rule of 40 score, the sales-efficiency magic number and the burn multiple.
Results
What this tool does
The Rule of 40 says that revenue growth plus profit margin, both in percent, should reach about 40, so a company can trade growth for profit or the reverse. The magic number annualises the revenue added in a quarter and divides it by the previous quarter's sales and marketing spend, showing how much new recurring revenue each unit of spending buys. The burn multiple divides the cash burned by the net new annual recurring revenue it produced: the lower, the more efficient the growth. These are rules of thumb used by investors, not laws, and the thresholds people quote vary with company size and stage.
Formula
Rule of 40 = growth % + profit margin % · magic number = (revenue this quarter − last quarter) × 4 ÷ last quarter's sales & marketing · burn multiple = net burn ÷ net new ARR
Variables
| Symbol | Meaning | Unit |
|---|---|---|
gr | Revenue growth over the last year | % |
pm | Profit margin (EBITDA or free cash flow) | % |
qr | Revenue this quarter | — |
pq | Revenue last quarter | — |
sm | Sales and marketing spend last quarter | — |
nb | Net cash burned in the period | — |
nn | Net new annual recurring revenue in the same period | — |
R | Rule of 40 score | % |
ST | Against the 40 line | — |
MN | SaaS magic number | — |
BM | Burn multiple | — |
Worked example
- Revenue growth over the last year35 %
- Profit margin (EBITDA or free cash flow)5 %
- Revenue this quarter2,600,000
- Revenue last quarter2,400,000
- Sales and marketing spend last quarter1,100,000
- Net cash burned in the period900,000
- Net new annual recurring revenue in the same period1,200,000
- Rule of 40 score40.0 %
- Against the 40 lineAt or above 40
- SaaS magic number0.73
- Burn multiple0.75
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- The default values are typical reference figures, not measurements of your situation. Replace them with your own data whenever you have it.