![]() The build-out of these departments can definitely occur before you’ve hit $1M MRR.īy this point, with most departments in place, your eye should naturally be on gross margins, operating leverage, revenue growth, EBITDA, and so on. I think you can begin to measure this when you’ve built out most of the common, functional departments within your SaaS company.įor example, you have support, services, CSM, R&D, sales, marketing, and G&A. Startups should not be measuring this, because at that stage it’s more about product/market fit, go-to-market strategy, and cash flow.īrad Feld states that you can begin to measure this when you’ve hit $1M of MRR. You should measure the rule of 40 when you are a more mature company. An unknown late-stage investor invented the rule for SaaS companies with at least $50 million in revenue. Contrary to common belief, Brad did not invent the rule himself. He does mention in his blog post that he had overheard a late-stage investor mention the Rule of 40.ĭuring this board meeting, the investor mentioned this “new” rule. ![]() In early 2015, the Rule of 40 entered the SaaS metrics arena when Techstars’ Brad Feld wrote a blog post about it: “40% rule for a healthy software company”. Where Did The Rule of 40 Come From? Who Invented The Rule of 40? budget allocation, internal funding of new ideas)Īs a rule of thumb, you should always aim for a percentage higher than 40.
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