How close are publicly traded SaaS companies to achieving the Rule of 40? They’re not. Below is Rule of 40 math in 2025, 2024, and 2023 for SaaS companies that have gone public since October 2017. 57 of them are still public today. Observations follow:
Rule of 14? On median in 2025, 2024, and 2023, the data shows that Rule of 40 was no higher than 14%. That’s a meaningful improvement from 2024 and 2023 when it was more like ~10%, but still a ways away from Rule of 40.
The improvement came from operating margin improvement. Median operating margin went from -15% in 2023 to -10% in 2024 to -6% in 2025. Growth rate on median has actually come down. So the improvement to Rule of 14 has come completely from operating margin improvement.
Profitable companies are much closer. Profitable companies on median had a Rule of 24 in 2025 while unprofitable ones had a Rule of -3%. The profitable companies got there with a blend of margins and growth; the median operating margin was 15% while median YOY growth was 1%. The unprofitable companies had far stronger growth with a median of 22% but where weighed down by a median operating margin of -16%.
The dispersion among the unprofitable is wide. Some unprofitable companies are growing at 40%+ with -20% margins and are in fine shape. Others are growing at 8% with -25% margins and are in genuine trouble.
The paradox of valuation. While profitable companies are much closer to the Rule of 40, they achieve much lower multiples than high growth companies with higher losses. If you visit softwaremultiples.com, you’ll see a clean break out of the multiples for the fastest growing companies versus the most profitable. As of June 25th, the 30 fastest growing SaaS companies had a median multiple of 5.7x while the 30 most profitable had a median multiple of 3.3x. Growth is worth far more than profitability.
Should you strive for Rule of 40 in your SaaS business? We’ve always been dubious of Rule of 40 and actually believe it to be a dated, somewhat lazy saying. Instead, push for cash efficient growth with customers that show high retention rates (100%+ NDR).
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Other resources we’ve built for founders include: SoftwareMultiples.com; softwareMRRcalculator.com; FounderInvited.com, and TwoFoundersTalk.com. Founders are always welcome to reach out to sammy@blossomstreetventures.com as well.
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