// Metrics

Rule of 40

Growth rate + free cash flow margin should sum to at least 40 for a healthy SaaS business.

In depth

The Rule of 40 became the dominant public-SaaS valuation heuristic post-2022. A 60% grower losing 20% margin passes; so does a 20% grower at 20% margin. Below 40, multiples compress fast.

Related terms

ARR

Annual Recurring Revenue, the run-rate of contracted subscription revenue at a point in time.

NRR

Net Revenue Retention, % of recurring revenue retained from existing customers over 12 months, including expansion, minus churn and contraction.

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