The Rule of 40 in SaaS: How to Calculate It and Why Investors Care
The Rule of 40 states that a SaaS company's combined growth rate and profit margin should exceed 40%. For example, if your revenue is growing at 30% year-over-year, your profit margin should be at least 10%. Companies scoring above 40 are considered well-balanced between growth and profitability, making this metric a favorite among VCs and growth-stage investors.