# Rule of 40

A software screen: growth rate plus profit margin should clear 40.

Investors in [recurring-revenue](https://searchspheresource.com/glossary/mrr) software use it to decide whether a company is allowed to be unprofitable. A business growing 30% at a 15% margin clears it; one growing 10% at a 10% margin does not, and no story about future scale fixes the arithmetic. For a buyer the useful part is the trade it makes explicit. Every point of margin you spend on growth has to buy more than a point of growth, and a seller who has been buying growth expensively will show it here before it shows anywhere else.

In numbers: A company growing 22% with a 12% [EBITDA](https://searchspheresource.com/glossary/ebitda) margin scores 34, under the bar; the same growth at a 20% margin scores 42 and clears it.

Source: https://searchspheresource.com/glossary/rule-of-40
Not dated: A definition is editorial: what a term means, why it matters, and an example. None of it reads a source that can go stale, so there is no date to take and a stamped one would be the build time wearing a costume.

Site index for machines: https://searchspheresource.com/llms.txt