3Q17 SaaS Public Market Rule of 40% Analysis

Our 3Q17 SaaS Public Market Snapshot includes operational and financial performance metrics for all publicly traded SaaS companies. This includes median EBITDA margin, TTM revenue growth, operating ratios, the Rule of 40% analysis, public market multiples by product category, and more…

SaaS Public Market Rule of 40 Highlights:

  • The Rule of 40% stands as a proxy for assessing the health of SaaS companies by taking into consideration two important metrics: revenue growth and profitability.
  • To calculate a company’s metric on a Rule of 40% basis, simply add revenue growth rate and EBITDA margin together. For example, Workday’s 37.3% revenue growth rate and -12.4% EBITDA margin equates to 24.9% on a Rule of 40% basis.
  • As the chart indicates, there is generally a strong correlation between EV/Revenue and the Rule of 40%.

To see a select list of companies by Rule of 40%, see page 11 in our 3Q17 SaaS Public Market Snapshot.