Metrics
Rule of 40
Quick definition
ARR growth rate + operating margin should sum to 40%+.
The Rule of 40 is a shorthand SaaS health check: a company growing 30% with a 10% operating margin (30 + 10 = 40) is 'at rule'. It captures the tradeoff between growth and profitability and is widely used by investors and boards.
Related metrics terms
ARR (Annual Recurring Revenue)
Annualized value of your subscription revenue at a point in time.
MRR (Monthly Recurring Revenue)
Monthly equivalent of ARR, useful for month-over-month tracking.
Net Revenue Retention (NRR)
Revenue from your existing customer base 12 months later, including expansion and churn.
Gross Revenue Retention (GRR)
NRR without upsell — what you keep before expansion.
See this in action
Insights and tools where Rule of 40 shows up.
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