For more than a decade, the Rule of 40 has been the gold standard for measuring SaaS performance:
Growth Rate + Profit Margin ≥ 40
But in today’s environment of higher interest rates, multiple compression, private equity leverage, and AI-driven cost pressures, that benchmark may no longer be enough.
In this episode of the Metrics Brothers, Ray “Growth” Rike and Dave “CAC” Kellogg explore why many investors and operators are now targeting something far more ambitious:
The Rule of 60.
Dave walks through the history of SaaS economics, from the growth-at-all-costs era, to the rise of balanced metrics after 2015, to the capital reset that began in 2022. The discussion then shifts to the math driving today’s expectations: if private equity firms buy companies at high multiples but must sell them later at lower multiples, Rule-of-40 performance simply doesn’t always generate acceptable returns.
In many leveraged SaaS deals today, hitting Rule of 60 can be the difference between a 1.1x return and a 3x outcome.
Ray and Dave also dig into how the Rule of 40 is evolving in practice, including:
- Why growth still matters far more than margin in valuation models
- How companies organically converged on the “20/20” Rule-of-40 profile
- Why PE investors increasingly expect Rule-of-60 performance
- The impact of debt service, CAC inflation, and AI cost structures
- Why achieving Rule of 60 often requires radical operational changes
The takeaway: this isn’t a temporary metric trend.
For many SaaS companies, the math of modern software investing now demands it.
One interesting comment that reflects the reality of the Rule of 60, especially for companies that have been funded with leverage debt is: “This isn’t a fad. The math of the deal breaks without it.”
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