How To Calculate Rule of 40 in Quickbooks Online | Arithmix

Calculating the Rule of 40 is a valuable tool for any business owner or investor looking to assess the health and potential of a company. It is a simple formula that takes into account a company's revenue growth rate and profitability, and can be used to determine whether a company is on track for success or if there are areas that need improvement.

What Is Rule of 40?

The Rule of 40 is a formula that combines a company's revenue growth rate and profitability to determine its overall health and potential for success. The formula is simple: add a company's revenue growth rate and its profitability (measured by EBITDA margin) together, and if the result is 40% or higher, the company is considered healthy and on track for success.

For example, if a company has a revenue growth rate of 20% and an EBITDA margin of 25%, its Rule of 40 score would be 45% (20% + 25% = 45%). This indicates that the company is in a strong position and is likely to continue growing and generating profits.

When Is It Valuable To Calculate Rule of 40?

The Rule of 40 is particularly valuable for startups and high-growth companies, as it can help investors and business owners assess the potential of these companies and determine whether they are worth investing in or acquiring. It can also be useful for established companies that are looking to assess their overall health and potential for growth.

By calculating the Rule of 40, business owners and investors can gain valuable insights into a company's performance and potential, and make informed decisions about where to invest their time and resources. It can also help identify areas where a company may need to improve, such as by increasing revenue growth or improving profitability.

Overall, the Rule of 40 is a simple yet powerful tool that can help business owners and investors make informed decisions about the companies they are involved with. By taking into account both revenue growth and profitability, it provides a comprehensive picture of a company's health and potential, and can help identify areas for improvement and growth.

How Do You Calculate Rule of 40 in Quickbooks Online

Quickbooks Online itself isn’t naturally geared towards letting you calculate complex metrics like Rule of 40. As an alternative, teams typically use products like Arithmix to import data from Quickbooks Online and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Quickbooks Online, combine it with data from other systems, and create calculations like Rule of 40.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Rule of 40 in Arithmix

Calculating metrics like Rule of 40 is simple in Arithmix. Once you've created your free account, you’ll be able to import your Quickbooks Online data, and use it to create natural language formulas for metrics like Rule of 40.

Arithmix is designed to give you the power to build any calculations you want on top of your Quickbooks Online data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.