Rule of 40

Rule of 40 says that the sum of YoY growth percentage and operating margin should clear 40 for a healthy SaaS business. Above 40 is generally a quality threshold, above 60 is best-in-class. The metric is a heuristic, not a model: it averages over very different mixes (e.g. 80% growth at −40% margin vs. 10% growth at 30% margin) and rewards both. Diligence treats Rule of 40 as a starting filter, not an endpoint.