The Rule of 40 in SaaS is a simple financial framework that balances revenue growth versus profit margins. It is an efficient financial management tool that helps quickly assess a SaaS company's health and attractiveness. According to the Rule Of 40, a well-performing SaaS company's recurring revenue growth rate plus EBITDA margin should be equal to or greater than 40%. It is a simple and easy way of evaluating SaaS companies used by Brad Feld, a leading VC investor and founder of Techstars. The goal of a good SaaS company is to have a profit plus growth greater than 40%. If your company has achieved the Rule of 40, you are deemed attractive to investors.
Rule of 40 Calculator Excel Template
Rule of 40 is a simple calculation that requires only two financial metrics from the Income Statement
With Rule of 40, you can focus on the never-ending quest to balance the tradeoff between growth and profit
Evaluate the revenue and cash flow generated by your SaaS business
Assess the financial health and investors' attractiveness of your SaaS business
