Rule of 40
Définition
The Rule of 40 is a SaaS benchmark stating that a healthy company's revenue growth rate plus its profit margin, both expressed as percentages, should add up to 40 percent or more.
Comment cela se présente dans le financement
Growth-stage investors use the Rule of 40 as a quick screen: a company growing 60 percent a year while losing 30 percent of revenue scores 30, below the bar, while one growing 50 percent while losing only 10 percent scores 40 and clears it.
Questions fréquemment posées
Which profit margin does the Rule of 40 use?
Most commonly EBITDA margin or free cash flow margin, though some investors substitute a company's operating margin depending on what data is available.
Does an early-stage startup need to hit the Rule of 40?
Rarely at pre-seed or seed. It becomes relevant once a company has meaningful recurring revenue and growth investors start comparing it against peers on efficiency, typically from Series B onward.
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