Rule of 40

The Rule of 40 says a healthy SaaS business should have its revenue growth rate plus its profit margin add up to at least 40 percent. So a company growing 30 percent a year with a 10 percent margin passes; one growing 15 percent while burning at a 30 percent loss fails. It is a quick sanity check on whether you are trading profitability for growth in a balanced way.

For a founder it cuts through the false choice between growing fast and making money. Early on you might run a thin or negative margin because you are growing quickly, and that is fine. As growth slows, the rule expects margin to rise and carry the weight. If you are below 40 with no plan to close the gap, you are neither growing fast enough to justify the burn nor profitable enough to stand alone. It forces an honest read on which lever to pull next.