If your SaaS business is in its early years, “T2D3”, which we’ll cover in a separate post. To the market should NOT be overly concerned with the Rule of 40 but focus on Generally speaking, SaaS companies who are new Meaning that it might be an excellent investment opportunity. This signals that the company is strong on Of course, if a company’s Rule of 40 number is They can turn over a decent amount of revenue due to their higher profit TheseĬompanies aren’t likely to become the market leader anytime soon, but at least Since these companies aren’t growing quickly, they have to compensate with highĬash flow and high EBITDA margins if they want to be seen as attractive. What if your business has a low growth rate? The power to realize higher margins in the future. Yes, you might be burning a ton of money on Customer AcquisitionĬosts, but if you do manage to dominate your market, then this will give you Trading profit for growth, in the hopes that you’ll eventually achieve a Sales reps that they hire don’t come cheap, and as such, this eats into yourĬompanies in these situations are essentially Marketing in order to realize high growth.

High customer acquisition costs, as you have to invest heavily in sales and

Think of it this way: most SaaS companies have Read on to find out more! How does the Rule of 40 work? In this blog post, we’ll walk you through how the Rule of 40 works, and teach you how to calculate your Rule of 40 number. That your company is worth putting money into The Rule of 40, this financial framework helps you weigh up your revenue growthĪgainst your margins. If this is the first time you’re hearing about Here’s a common dilemma that all SaaS business owners face - should you pursue growth at all costs, or is it more important to make sure that your margins are healthy, and that you’re not losing money with each new customer that you bring on board?

The rule of 40 formula is growth