The formula for SaaS companies is generally growth + net margin should equal 40%. If they’re growing 100%, even a negative 50% margin leaves them in the clear by 10%.
Beambot has the source. The general idea is its ok to lose Money if your net (growth minus losses) is higher than your cost of capital. (VC
money expects a 30-50% rate of return) In general SaaS companies have high fixed costs so it’s a race to get big enough to cover them. The rule of 40 flags companies that are too unprofitable or not growing fast enough.
Like all financial metrics (PE ratio, etc) it’s still just a crude guide.
Can you say exactly what formula this is and what is a formula for?
Also what is the significance of the number 40 as a target?