Rule of 40

A benchmark for SaaS health: your revenue growth rate percentage plus your profit margin percentage should equal at least 40. It balances growth speed against profitability.

The Rule of 40 lets you evaluate whether a high burn is justified by high growth, or whether a slower growing business is sustainably profitable. Investors use it to compare companies at different growth stages.

Your SaaS grows at 80% annually but runs at a 50% operating loss. 80 minus 50 equals 30. You are below the Rule of 40. A company growing at 30% with a 15% profit margin scores 45 and passes.