Rule of 40
Rule of 40: ARR Growth Rate (YoY %) + EBITDA Margin (%).
Related Terms
Other definitions in Efficiency Terms:
CAC (Customer Acquisition Cost)
Total cost to acquire a new customer.
Marketing CAC
Marketing-only portion of CAC (excludes sales costs).
LTV (Customer Lifetime Value)
Total profit expected from a customer over their lifetime. Calculated with gross margin.
LTV:CAC Ratio
Ratio of customer lifetime value to acquisition cost.
CAC Payback Period
Time required to recover customer acquisition cost.
Gross Margin
Revenue minus cost of goods sold, as percentage of revenue.
Magic Number
Sales efficiency metric: QoQ ARR growth divided by prior quarter S&M spend.
Burn Multiple
Capital efficiency metric: Net burn divided by net new ARR. Popularized by David Sacks.
Related Metrics
Rule of 40
A heuristic that balances growth and profitability. A healthy SaaS company's growth rate plus profit margin should equal 40% or more.
Core
Rule of 40
A heuristic that balances growth and profitability. A healthy SaaS company's growth rate plus profit margin should equal 40% or more.
Finance