Article · 4 min read

The Data Behind the Rule of 40%

Tomasz Tunguz · tomtunguz.com Free Intermediate

Short, and it does the thing most Rule of 40 explainers skip: it checks the rule against actual public SaaS company histories and shows where the threshold does and does not apply.

• The rule is simply growth rate plus profit margin adding to 40 percent.
• It only starts to bind around year five or six: early companies routinely score over 100 percent.
• Workday hit 189 percent in 2010, growing revenue 252 percent at negative 57 percent net income.
• Across about 15 years the median public SaaS score drifts from 100 plus down to roughly 30, so before growth stage, watch unit economics instead.