SaaS Rule of 40

A balanced growth-vs-profitability KPI. Distinct from finance Rule of 72 and from SaaS magic number.

Score = growth % + profit margin %.

Tip: Keep “Revenue Growth %” and “Profit Margin %” on the same basis (period, units, and population) before calculating SaaS Rule of 40.

Cluster: SaaS hub · Finance loan-to-value · HR retention rate · Code churn · Percentage guide

The Rule of 40 adds revenue growth percentage to profit margin percentage.

Enter revenue growth % and profit margin % for the same period (often YoY growth + operating margin).

Revenue growth percent
Profit / operating margin percent

Rule of 40 Score

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

SaaS Rule of 40
Rule of 40 = Revenue growth % + Profit margin %

Worked Example

Scenario: Revenue growth 25%; profit margin 18%.
Step 1: 25 + 18 = 43
Answer: Rule of 40 score is 43.

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: