{"id":13396,"date":"2024-10-16T11:43:11","date_gmt":"2024-10-16T09:43:11","guid":{"rendered":"https:\/\/www.innowerft.com\/?p=13396"},"modified":"2026-08-10T01:06:38","modified_gmt":"2026-08-09T23:06:38","slug":"family-office-asset-management-and-growth-opportunities-for-startups-2","status":"publish","type":"post","link":"https:\/\/www.innowerft.com\/en\/rule-of-forty-kennzahl-fuer-wachstum-und-profitabilitaet\/","title":{"rendered":"What does the Rule of Forty mean?"},"content":{"rendered":"

The Rule of Forty is a key figure used to assess\u00a0Growth and profitability among Software-as-a-Service companies<\/strong>, or SaaS companies for short.<\/p>\n

It states that the sum of the percentage growth in turnover and the profit margin should be at least 40 per cent.<\/p>\n

The simplified calculation is as follows:<\/p>\n

Revenue growth as a percentage + profit margin as a percentage = Rule of Forty figure<\/strong><\/p>\n

The EBITDA margin is often used as a measure of profit margin. However, depending on the company or investor, other key figures such as the operating margin or the free cash flow margin may also be used.<\/p>\n

One example:<\/p>\n\n\n\n\n\n\n\n
Key figure<\/strong><\/td>\nValue<\/strong><\/td>\n<\/tr>\n<\/thead>\n
Annual revenue growth<\/td>\n30 %<\/td>\n<\/tr>\n
EBITDA margin<\/td>\n12 %<\/td>\n<\/tr>\n
Rule of Forty value<\/td>\n42 %<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

In this example, the company achieves a figure of 42 per cent, thereby meeting the Rule of Forty.<\/p>\n

The results can generally be categorised as follows:<\/p>\n\n\n\n\n\n\n\n
Result<\/strong><\/td>\nMeaning<\/strong><\/td>\n<\/tr>\n<\/thead>\n
over 40 %<\/strong><\/td>\nThere is a strong correlation between growth and profitability.<\/td>\n<\/tr>\n
exactly 40 %<\/strong><\/td>\nThe guidance requirement is met.<\/td>\n<\/tr>\n
under 40 %<\/strong><\/td>\nGrowth or profitability could be improved.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The Rule of Forty takes into account the fact that fast-growing SaaS companies often do not yet generate high profits. Strong revenue growth can therefore partially offset a low or negative margin.<\/p>\n

Examples of different combinations include:<\/p>\n

    \n
  • 50 per cent growth and a 10 per cent decline in the EBITDA margin<\/li>\n
  • 35 per cent growth and a 5 per cent EBITDA margin<\/li>\n
  • 20 per cent growth and a 20 per cent EBITDA margin<\/li>\n
  • 10 per cent growth and a 30 per cent EBITDA margin<\/li>\n<\/ul>\n

    All combinations result in a Rule of Forty value of 40 per cent.<\/p>\n

    For start-ups and investors, this key figure can be useful for:<\/p>\n

      \n
    • Assessing growth and profitability together<\/li>\n
    • To compare SaaS companies more effectively<\/li>\n
    • to put the financial performance into context<\/li>\n
    • to set strategic priorities<\/li>\n
    • to recognise when growth is too rapid at the expense of economic efficiency<\/li>\n<\/ul>\n

      However, the Rule of Forty should not be considered in isolation. The stage of the company\u2019s development, market conditions, customer retention, recurring revenue, liquidity and cost structure also influence the financial quality of a SaaS business model.<\/p>\n

      innoWerft helps start-up founders to interpret relevant SaaS metrics, review growth and funding strategies, and present business developments in a way that is easy to understand for discussions with investors.<\/p>","protected":false},"excerpt":{"rendered":"

      The Rule of Forty is an important metric for SaaS companies that combines revenue growth and profitability to assess the health of a business.<\/p>","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","content-type":"","inline_featured_image":false,"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[47],"tags":[],"class_list":["post-13396","post","type-post","status-publish","format-standard","hentry","category-glossareintrag"],"yoast_head":"\nRule of Forty: Kennzahl f\u00fcr Wachstum und Profitabilit\u00e4t - innoWerft<\/title>\n<meta name=\"description\" content=\"Die Rule of Forty misst Umsatzwachstum und EBITDA-Marge von SaaS-Unternehmen. 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