Understanding SaaS Rule of 40
How we calculate. Score = growth % + profit margin %. The form uses the same arithmetic as the worked examples on this page. See our methodology and accuracy policy.
Real-world scenario: A typical SaaS Rule of 40 case uses revenue growth % 25 and profit margin % 18. Enter the same figures below to reproduce the worked path.
What is SaaS Rule of 40?
A balanced growth-vs-profitability KPI. Distinct from finance Rule of 72 and from SaaS magic number.
- Growth % = revenue growth for the period
- Margin % = profit / operating margin per policy
- Same period
The Formula
Worked Example
Common Use Cases
- Board packs: growth + margin balance
- Peer comps: Rule of 40 screen
- Strategy: growth vs profitability trade-off
Pro Tips
- Freeze margin definition (operating vs free cash flow)
- Don’t use Rule of 72
- Pair with magic number
Limitations: SaaS Rule of 40 results are educational SaaS / subscription planning aids—not accounting, tax, or investment advice. Confirm definitions with your billing system and board reporting standards.
FAQ
Same as Rule of 72?
No. Rule of 72 estimates doubling time for compound growth. Rule of 40 is growth % + profit margin %.
What is a good score?
Many SaaS investors look for a combined score near or above 40—your board definition of margin still matters.
Authoritative References
For SaaS metrics and subscription performance concepts, consult:
- SaaStr — SaaS growth and metrics context
- For Entrepreneurs — SaaS metrics explainers
- Bessemer Venture Partners — cloud / SaaS industry research