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Unit economics & SaaS
The Rule of 40
A software benchmark: revenue growth rate plus profit margin should add to at least 40%. Fast growth excuses losses; slow growth requires profit.
Owned by: Manager / DirectorTest band: Manager / Director
The formula
Growth % + Profit margin % ≥ 40
In practice
A rule of thumb, not a law. It is most useful for saying which of growth or margin to push when you can only push one.
The kind of thing the test asks
- A software business grows 15% with a 10% margin. By the Rule of 40, the lever to pull is…
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