Rule of 40

Definition

A SaaS health gauge: revenue growth rate plus profit margin should total at least 40. Fast growth excuses losses; slow growth demands profit.

Formula

Score = YoY revenue growth % + Operating (or FCF) margin %

Worked Example

Growth 70% YoY, operating margin -8%:

Score = 70 - 8 = 62   (>= 40: pass)

Interpretation & Pitfalls

A 62 with deteriorating GRR is worse than a 45 with NRR 115% — composite scores never excuse reading components.

In TupicFinance

Growth comes from revenue trends, margin from the P&L; the KPI engine combines them.