Rule of Forty (RO40)

The RO40 postulates that a SaaS company's growth rate and profitability should exceed 40o%. Companies can achieve this benchmark through high growth and negative profitability or the inverse with lower growth and higher profitability. Either approach leads to outsized enterprise values compared to peers with lower RO40 values. The RO40 serves as a yardstick that allows SaaS companies with a wide variety of GTM strategies to benchmark growth