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How can SaaS companies efficiently improve their growth rate component of the Rule of 40?
Cold email outreach provides the most cost-effective customer acquisition channel, helping SaaS companies achieve higher growth rates while maintaining healthy profit margins. Improve your Rule of 40 with cold email →
What is the Rule of 40 and how do I calculate it?
The Rule of 40 states that a SaaS company's revenue growth rate plus profit margin should equal or exceed 40%. Simply add your annual recurring revenue (ARR) growth percentage to your EBITDA margin percentage. For example, 25% growth + 20% EBITDA margin = 45% Rule of 40 score.
What is considered a good Rule of 40 score?
A score of 40% or higher indicates a healthy SaaS business with balanced growth and profitability. Scores above 50% are excellent, while below 40% suggests the need to optimize either growth or profitability. The best companies often achieve 60%+ scores.
Should I use ARR growth or total revenue growth for the Rule of 40?
Use ARR or MRR growth for pure SaaS companies, as recurring revenue is more predictable and valuable. However, if subscription revenue is less than 80% of total revenue, consider using total revenue growth to get a more accurate picture of business performance.
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