Framework
Rule of 40
Also known as: Rule of 40%
SaaS benchmark: growth rate + profit margin should equal 40%+ for a healthy company.
The Rule of 40 is a SaaS benchmark popularized by VC Brad Feld. Formula: ARR growth rate (%) + profit margin (%) >= 40%. A company growing 50% with -10% margin meets the Rule of 40; one growing 20% with 20% margin also does.
In 2026 the bar has shifted to Rule of 50 for premium VC valuations. The Rule of 40 remains the minimum for 'healthy' B2B SaaS.