What Is the Rule of 40, and How Does Atlassian Measure Up?

The Rule of 40 says a software company's revenue growth rate plus its profit margin should reach 40 percent or more. It is a test of balance. A company can grow fast, or earn well, but it should not fall short on both.

Atlassian is judged by this test because it sells software by subscription. Atlassian does not publish a Rule of 40 score itself. Analysts compute it from the growth and margin numbers Atlassian reports each quarter.

How the Math Works

Two people can get two different scores for the same company. The reason is the margin they pick.

Some use operating margin under standard accounting rules. Some use adjusted operating margin. Many software investors use free cash flow margin instead.

Always say which margin you used. A score without that label means very little.

Where Atlassian Stands

Atlassian reports revenue growth and free cash flow every quarter in its investor materials. Those filings are the only source worth quoting.

Atlassian has been widely reported to clear the 40 percent line, mostly on strong growth and strong free cash flow. Treat any single score you read as reported, not confirmed. Check the latest quarterly report before you use a number in an interview.

One earlier version of this page claimed a score of 70 percent. That figure was not tied to a filing, so it has been removed.

Why Atlassian Scores Well

Atlassian sells Jira, Confluence, Trello, Bitbucket, and Jira Service Management. Most customers buy these online without talking to a salesperson.

That low-touch model is the main reason the margin stays high. Sales and marketing cost less per customer than at companies with large field sales teams. Money saved there lands in the margin half of the formula.

The growth half comes from three sources. New teams sign up. Existing teams add seats. Customers move from one product to several.

Atlassian also shifted customers from self-hosted licenses to cloud subscriptions. Subscription revenue repeats every year, which makes growth steadier.

The Company Facts Behind the Number

Atlassian was founded in Sydney, Australia by Mike Cannon-Brookes and Scott Farquhar. It trades on the Nasdaq under the ticker TEAM.

The company uses two classes of shares. Class B shares carry more votes and are held mainly by the founders. So the founders keep control even though public investors hold a large economic stake.

Headcount, revenue, and share price all change every quarter. Look them up in the latest filing rather than trusting a page like this one.

Why an Interviewer Might Bring This Up

Most engineering interviews at Atlassian will not ask about the Rule of 40. It comes up in two places.

The first is finance, strategy, and product roles, where you are expected to read the company's numbers. The second is your own questions at the end of any loop.

Asking how a team's work affects growth or margin shows you understand the business. Keep it short and specific. Ask about one product, not the whole company.

How to Prepare for an Atlassian Interview

• Read the latest quarterly report. Pull the revenue growth rate and free cash flow margin yourself. That is one hour of work and it beats any summary.
• Know the product you are joining. Jira, Confluence, and Trello solve different problems. See what Atlassian is famous for and who owns Atlassian.
• Learn the loop before you study. The Atlassian interview process, round by round lists each stage and what it tests.
• Prepare the values round. Atlassian puts real weight on it. Work through top Atlassian behavioral interview questions with Grokking the Behavioral Interview.
• Practice the design round on real products. Atlassian likes questions drawn from its own tools. Start with top system design questions for Atlassian.