Rule of 40 — Rule of 40
Definition: Growth rate plus profit margin should sum to at least 40 for a healthy SaaS business. It forces the trade-off between growth and profitability into a single board-ready number.
Example
In board meetings, you'll often hear something like: "Let's pull the latest Rule of 40 numbers before we make a call" — shorthand for rule of 40.
When you'll hear it
Rule of 40 shows up most often in board meetings, quarterly business reviews, and strategy off-sites. When someone uses it, they're usually referring to rule of 40 — and they expect the room to already know what that means.
FAQs
What does Rule of 40 stand for?
Rule of 40 stands for Rule of 40.
What does Rule of 40 mean in business and finance?
Growth rate plus profit margin should sum to at least 40 for a healthy SaaS business. It forces the trade-off between growth and profitability into a single board-ready number.
Where will I hear Rule of 40 used at work?
Rule of 40 comes up most often in board meetings, quarterly business reviews, and strategy off-sites. It's used as shorthand for rule of 40, so people assume you already know the term.