Rule Of 40

“We will not hit the rule of 40 this year.”

“I mean, our rule of 50 in the last, rule of 40, sorry, in the last quarter, I think was like a 150.”

“The way that those products and industries evolve, you can't use the same rubric like you can looking at SAS and applying the rule of 40.”

“Everyone tells us to be super modest about 93% growth in the U.S. And 94 rule of 40.”

“And if you add Figma's up there, they're in the 70%. So well beyond 40, 40% according to the rule of 40”

“As we think about incorporating generative AI into the actual operations of the software business, we can see companies getting to rule of 50, rule of 60, rule of 70, and being significantly more profitable over the next few years as these solutions get better…”

“I tell companies all the time, 10%. That's the number. You have 10% of your revenue that you can spend on all things post sales. And I can debate what's in there or not in terms of the menu we talked about. But ultimately, if you're going to run a business tha…”

“It's hard to make a substantial J curve and affect your rule of 40 when you're public. It's just a different beast.”

“So, but that then saying that that is a causal rule that drives to create big companies, that's absolute bullshit. Because I can have a company that is actually declining while I'm milking out a lot of cash and I will get to a rule of 40, but obviously that is…”

“You know, a VC will look across their portfolio and think of the best CAC payback period, the best LTV to CAC, the best rule of 40, and ask you to do, you know, beat them on all four, right? It's inherently unfair. It's a form of bludgeoning, right?”

“SaaS metrics should be this, and this should be your margin, and rule of 40, and all of this. Like, are you aware that none of this existed? 14 years ago. People, we were making it up as we went along. It's like, what should be great metrics for a SaaS company…”

“What's becoming more and more prevalent today is the importance of the rule of 40, profitability, sustainable growth, and less on growth at all costs.”

“But it's now the number one SAS metric as correlated to enterprise value in the next 12 months revenue. A year ago, it was number five. Growth is still number two. But balanced growth with profitability is number one.”

“CAC ratio to me is superior to the rule of 40. Why? I'm sorry. The SAS magic number. Why? Because you can measure how much sales and marketing investment you need to make for one dollar of new name ARR, and How much sales and marketing, customer success invest…”

“So 44% of enterprise value to next 12 month multiples can be explained by rule 40 versus revenue growth.”

“If you were to take all the data that's in the 20, the zero, the under zero to up to 40, and then compare that to the over 40, it was about 1.5 x higher for the people who were over 40 before. And now it's two x higher if you're over 40.”

“So if you just use rule of 40 where you composite, you smoosh growth and efficiency together, until Q two of last year, there was actually no correlation. So, like, I would have called total BS on using rule of 40 by itself before Q two of last year. It just w…”

“Now, 21% of the variation in multiple is explained by variation in rule of 40, but you can do better.”

“Rule of 40 kind of implies that mediocre growth is okay if you're profitable, and that's the disservice. It's, no VC is interested in mediocre growth that's profitable, like we started this earlier. No one's interested in the rule of 30. We really, VCs want ru…”

“The rule of 40 is a measurement for public company scale businesses. And if you're at orders of magnitude below that at 10 to 15 in ARR, it's a different rule. You know, you'll never get to scale and have that sort of profitability margin at scale unless you'r…”

“You've got to get to a hundred million with rule of 40 at a hundred million for you to really be on, you know, a potential IPO path.”

“The problem is that this only really works if you're at I know, 10, fifteen million or so in, in ARR. At a much earlier stage, you will almost always have a not so good rule of 40 because the investments in product and engineering are just like so high that t…”

“The rule of 40 is like a rule of 80 today.”

“They rank lower on the rule of 40 matrix, which actually is a direct correlation between how well you're positioned on that rule of 40 matrix to what your valuation is, either at exit or on a capital raise. And so If your rule of 40 is very high, which ours is…”

“If the business's revenue growth plus its EBITDA margin for that year is at or If you're above 40%, so let's say it's growing up 35% year over year, and it's got five percent in EBITDA margin, then it's just at that threshold. Then it starts to command, yeah, …”

“We've found that it's not really as relevant for earlier stage companies. So, companies below thirty million of ARR We tend to find that a much better way of measuring efficiency is through looking at this, ah, score of net new ARR divided by cash burn.”

“If you bring that into consideration and we're trending healthily above the rule of 40, which is basically the growth percentage plus your EBITDA.”

“In fact, if you look at all the publicly traded SaaS companies, over 80% of the total market value is inside of companies with E-forty or higher, less than 20% of the value is E-forty or lower.”