Rule Of 40: What Is It, How to Calculate It, Examples The definition of the Rule of 40 is that software companies are most efficiently run (and therefore, more attractive for investment) when the sum of their year-over-year growth rate percentage and its profit margin percentage is at least 40% Like this: YoY Growth % + Profit Margin Percentage = 40% (or more) Why is the Rule of 40 important?
The Rule of 40 SaaS | How to Calculate and Why It Matters in 2025 . . . How to Calculate the Rule of 40? The rule of 40 formula requires just two inputs, growth and profit margin To calculate this metric, you simply add your growth in percentage terms plus your profit margin For example, if your revenue growth is 15% and your profit margin is 20%, your rule of 40 number is 35% (15 + 20) which is below the 40% target
The Rule of 40 (Brad Feld) | SaaS Formula + Calculator - Wall Street Prep The Rule of 40 – popularized by Brad Feld – states that an SaaS company’s revenue growth rate plus profit margin should be equal to or exceed 40% The Rule of 40 equation is the sum of the recurring revenue growth rate (%) and EBITDA margin (%)
The SaaS Rule of 40 Explained | CFI - Corporate Finance Institute What is the Rule of 40? The Rule of 40 is a financial metric widely used in the Software-as-a-Service (SaaS) industry to assess the performance of a company The formula itself contains only two metrics: 1) the revenue growth rate and 2) the profit margin
What Is The Rule Of 40 For SaaS? (Rule Of 40 Formula) - CloudZero The Rule of 40 is a principle that states a software company’s combined revenue growth rate and profit margin should equal or exceed 40% SaaS companies above 40% are generating profit at a sustainable rate, whereas companies below 40% may face cash flow or liquidity issues
Rule of 40 for SaaS: Full Guide and Excel Examples - Breaking Into Wall . . . Rule of 40 Definition: In Software as a Service (SaaS) financial models, the “Rule of 40” states that a company’s Revenue Growth + EBITDA Margin should equal or exceed 40% to be considered “healthy”; companies that exceed it by a wider margin may be valued more highly
Rule of 40 - saasmetricsboard. com Rule of 40 is a convenient way to determine if a SaaS company is balancing the growth rate and the cost of achieving that growth rate Historically, companies with a Rule of 40 equal to or greater than 40% will experience high enterprise value multiples to revenue Annual ARR Growth Rate + Annual Free Cash Flow¹
SaaS Rule of 40 Explained: Calculator, Benefits More - Mosaic The Rule of 40 is a SaaS financial ratio which states that a healthy SaaS company has a combined growth rate and profit margin of 40% or more This measure gives businesses a quick snapshot of business performance by comparing revenue growth to profitability
What is the Rule of 40? Calculation Guide Included - B2B SaaS Blog To calculate this metric, you simply add up your growth in percentage plus your profit margin, again, in percentage For example, if your revenue growth stands at 17%, and your profit margin stands at 20%, your Rule of 40 number is 37%, which is below the 40% target The formula goes as follows: