Glossary term
Rule of 40
A benchmark stating revenue growth % plus operating margin % should total at least 40; most public SaaS has fallen below it since 2022.
The Rule of 40 is a SaaS health benchmark stating that revenue growth rate plus profit margin should sum to at least 40%. A company growing 50% can afford to lose 10% margin, while a slower grower at 10% needs 30% margins to qualify. The rule has become a harder bar since 2022, with a broad swath of public SaaS falling below 40 as growth decelerated faster than margins improved. See SaaSpocalypse 101.