F · Unit economicsExternally proven

Rule of 40 (Toward 60)

Growth rate plus profit margin should add up to at least 40 percent; in a PE and interest-rate environment the bar shifts toward 60. Profit may be traded against growth, but the sum has to hold.

When you need this method

Your company is growing but burning cash, or it is profitable but barely growing. Either state can be rationalized on its own. Investors, especially in a mature or PE-adjacent context, demand a balance metric that disciplines growth and profitability in a single number.

Approach

  1. 1Add the ARR or revenue growth rate in percent and the profit margin (FCF or EBITDA basis, chosen consistently).
  2. 2Check the sum against the threshold: at least 40, increasingly 60 for PE maturity and profit discipline.
  3. 3If below, analyze which side is the real lever: inefficient growth or missing cost discipline.
  4. 4Use the metric as a guardrail for investment decisions, not as the sole objective.
  5. 5Watch GRR and NRR in parallel, because expansion can mask weak new business and churn.

Typical application

A typical case: a maturing B2B SaaS prepares for an ownership change toward PE. Growth and margin have so far been reported on separate board slides and optimized separately. Leadership switches to the combined metric and finds the company below the bar because growth is being bought with inefficient sales build-out. The consequence is not an austerity program but a deliberate shift from unprofitable segments to efficient ones, lifting the sum above the threshold.

Limits and counter-indications

The threshold is a convention, not a law of nature; it varies with the interest-rate environment, maturity and buyer type. Very young companies with small revenue should not be steered primarily by this metric. The choice of margin basis (FCF or EBITDA) changes the result and must be disclosed consistently.

How to measure impact

Sum of growth rate and profit margin in percent, tracked over time against the relevant threshold (40 or 60).

Related methods

Sources

  1. 1.Is 60 the New (Rule of) 40? Setting a New Standard of Software Excellence, Bain & Company (opens in a new tab) · Bain & Company · 2022 · investment, consulting or analyst firmBelegt die Regel als Summe aus Umsatzwachstum und EBITDA-Marge, dass die meisten Softwareunternehmen sie verfehlen und dass Spitzenanbieter inzwischen Werte in den 60ern und darüber erreichen.
  2. 2.Why the Rule of 40 is Becoming the Rule of 60, Dave Kellogg (Kellblog) (opens in a new tab) · Kellblog · 2026 · practitioner sourceFührt die Verschiebung der Latte auf gesunkene Bewertungsmultiplikatoren im Private-Equity-Umfeld zurück und zeigt die Verschiebung von 40 Prozent Wachstum plus 20 Prozent Marge zu 20 plus 40.

Origin: Kellogg

Last reviewed: 2026-07-25 by Dr. Oliver Gausmann

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