I was recently reminded of the Rule of 40 for growing SaaS businesses (coined by Brad Feld in this blog post), which states that the sum of a business growth rate and it’s profit margin should equal to approximately 40%.

So, if a business is growing at 20% (assuming YoY), it should generate 20% of profit. If you are growing at 100% assuming YoY, you can stand to lose 60% and still be considered “healthy”. This is simply a benchmark but is a good one to resolve growth vs. profitability decisions. Growth rates can also be benchmarked based on the T2D3 framework.

Growth and profit seldom grow in unison because companies do things that move one forward and strain the other, so having a simple to understand rule to maintain balance is very useful.