Rule of 40
Definition
Rule of 40: The Rule of 40 states that a healthy SaaS company's revenue growth rate plus profit margin should exceed 40%. A company growing 30% with 15% margins (45%) is healthy; 10% growth with 10% margins (20%) needs improvement. It balances growth against profitability.
Example Usage
“At 60% growth and -15% margins, our Rule of 40 score is 45%, showing efficient growth-stage performance.”
Common Misconceptions
Related Terms
Annual Recurring Revenue
Annual Recurring Revenue (ARR) is the yearly value of recurring subscription revenue, calculated as MRR multiplied by 12. ARR is the primary metric fo...
Unit Economics
Unit economics refers to the direct revenues and costs associated with a single unit of a business (a customer, product, or transaction). Positive uni...
Explore More Resources
Browse Tools
Discover 100+ vetted tools for every stage of your startup journey
Explore all toolsBuild Your Stack
Take our personalized quiz to get tool recommendations for your startup
Start the checklistRecommended Reading
Curated books to help you learn, grow, and succeed as a founder
View book recommendationsListen & Learn
Top podcasts covering startups, product, growth, and entrepreneurship
Discover podcastsHelp us improve this definition
See something that could be clearer or more accurate? Let us know.