2026 SaaS Rule of 40 Report: The Median Is 25%, Not 40%

Boards quote 40. The typical private B2B SaaS company is at 25. Public software, scored on free cash flow, sits at 32.8. Under $30 million in revenue, only 9 percent of private-equity-backed software companies even clear the line.

The Rule of 40 says a healthy SaaS company’s year-over-year revenue growth plus profit margin should sum to 40 or more. Brad Feld wrote it down in 2015 after a late-stage investor used it in a board meeting, for companies at scale — “assume at least $50 million in revenue.” Operators now paste it onto a $4 million ARR P&L, mix EBITDA with free cash flow, and treat a blended median as a pass/fail. That is how 25 and 40 end up on the same slide.

This B2Bcentr report separates the samples, shows which margin definition each one uses, and turns the score back into the two numbers a founder can actually move: growth and spend.

Key Takeaways

• The median private B2B SaaS Rule of 40 is 25% for full-year 2025, up 10 points from 15% — the largest single-year gain in five years of Aleph × Benchmarkit data (110 of 342 companies reported the metric). Top quartile: 43%. Bottom quartile: 7%, newly positive after −4% in 2024.
• Public SaaS, scored on free cash flow, has a median of 32.8. SaaSDB’s 15 June 2026 cut of 172 companies from SEC filings has 61 names at 40 or above — 35 percent of that set (arithmetic from the published count).
• Scale is the filter, not the formula. In BCG’s benchmark of 107 PE-backed B2B SaaS companies, 26% of firms above $80 million revenue beat the Rule of 40, versus 22% between $30 million and $80 million, and 9% below $30 million.
• The 2025 jump was a cost cut, not a growth rebound. Aleph’s median company cut R&D from 35% to 27% of revenue and sales and marketing from 37% to 35%, while growth decelerated to a 20% median. SaaS Capital’s 2026 survey of 1,000-plus private B2B SaaS companies puts median ARR growth at 22%, down from 25% in 2024.
• EBITDA and free cash flow are not interchangeable. Feld’s original version used EBITDA. Public comps and Bessemer’s Rule of X use FCF. Mixing them is how a board and a finance team argue past each other.
• At 22% growth you still need an 18-point margin to hit 40. Arithmetic from SaaS Capital’s 2026 median growth, not a surveyed composite. Companies growing 31–50% in the Aleph sample posted the lowest median Rule of 40 (8), because the spend required to buy that growth crushed the margin half.

Three samples, three different 40s

Search “what is a good Rule of 40” and you will get 40. The useful question is which sample produced the number sitting next to it.

Aleph × Benchmarkit, June 2026. 342 B2B SaaS and AI-native software companies; Rule of 40 from the 110 that reported it. Full-year 2025 actuals. Median 25, top quartile 43, 25th percentile 7. Growth half: 20% median. This is the private-operator number for 2026 planning.

SaaSDB, 15 June 2026. 172 public software companies. Formula: year-over-year revenue growth + free cash flow margin, from SEC EDGAR. Median 32.8. Sixty-one companies at 40 or above. HubSpot scores 43.8 (28.0% growth, 15.8% FCF). Salesforce scores 47.1 (9.4% growth, 37.7% FCF). Datadog scores 66.8. Same rule, different margin, different population. Do not put HubSpot’s 43.8 next to an $8 million ARR EBITDA score and call them peers.

BCG with seven growth-equity funds, 107 private B2B SaaS portfolio companies. The useful cut is not a median score. It is the share that clear 40: 9% below $30 million of revenue, 22% from $30 million to $80 million, 26% above $80 million. BCG’s Rule of 40 paper is the PE-backed private sample. Feld’s “at least $50 million” caveat is still doing work.

SaaS Capital’s 2026 spending and growth briefs — the same 1,000-plus-company survey behind B2Bcentr’s marketing budget and churn reports — do not publish a 2026 Rule of 40 median. They publish the two inputs. Median ARR growth: 22%. Bootstrapped companies spend a median 96% of ARR (83% are within two points of breakeven or profitable). Equity-backed companies spend 101% of ARR (52% near breakeven or profitable). Adding those medians is not a surveyed Rule of 40. SaaS Capital’s August 2025 note says it directly: the median of (growth + margin) is not median growth plus median margin.

If your board is using 40 and your finance team is using 25, you are not disagreeing about health. You are disagreeing about the sample.

Growth plus which margin

Feld’s formula is simple: year-over-year growth + profit ≥ 40. His examples still work as a decoder ring.

Profit is the argument. Feld preferred EBITDA, then back-tested operating income and free cash flow. Cloud-hosted companies usually see those three sit close together. Companies that own infrastructure, or that are capitalizing large AI build-outs, will not. Public tables — including SaaSDB — almost always use free cash flow: (operating cash flow − capex) / revenue. EBITDA is friendlier. FCF is what late-stage investors price.

Use one definition for every period and every peer. An EBITDA 40 against an FCF 32.8 is not a miss. It is two tests.

Bessemer’s Rule of X is the common overlay: (growth rate × multiplier) + FCF margin. Private-company multiplier about 2x; public about 2x to 3x. A company at 30% growth and 15% FCF scores 45 on the Rule of 40 and 75 on Rule of X at a 2x weight. The 15% growth / 30% FCF twin scores the same 45 on the Rule of 40 and only 60 on Rule of X. Same “40,” different business. Bessemer’s late-2023 BVP Cloud Index averages — about 31% Rule of 40, about 50% Rule of X — are weighting context, not this year’s bar.

The 10-point jump was a cut, not a rebound

Aleph’s 15-to-25 move looks like a recovery. Decompose it and it is a smaller company.

The 10 points came almost entirely from the margin half. Median growth in that sample decelerated to 20%. R&D fell eight points of revenue (35% to 27%). Sales and marketing fell two (37% to 35%). G&A fell several more. The score improved because companies spent less, including on the lines that produce next year’s growth.

That is the same P&L in B2Bcentr’s 2026 SaaS marketing budget report. SaaS Capital’s March 2026 survey still has marketing at 8% of ARR and selling at 15%. Selling is the larger acquisition line. Cutting marketing to “protect Rule of 40” while sales headcount stays put does not raise the score for long — and a fully loaded US SDR seat is already about $121,000 before CRM, data, and sequencer licenses.

KeyBanc Capital Markets and Sapphire Ventures, in the 16th annual private SaaS survey released 13 November 2025, describe the other side of the same turn: ARR growth expected to accelerate from 15% in 2024 to 20% in 2025, and EBITDA margins expected to breach profitability in 2026. Use KeyBanc for direction. Use Aleph for a 2025 private median. Use SaaS Capital for the 2026 growth and spend percentages.

The cohort table inside Aleph is the operator warning. Companies growing more than 50% posted a median Rule of 40 of 57 — the only growth band that clears 40 at the median, because the growth half carries the score. Companies growing under 10% sat at 19. The 31–50% growth band sat at 8, the lowest of the three. Buying that growth rate takes investment that compresses margin faster than the extra growth replaces it. Pairing high growth and high profitability at the same time is why so few companies clear 40.

Scale first, then the score

Feld put the rule at $50 million of revenue. BCG’s 107-company PE sample is the cleanest recent proof that the threshold still matters.

Nine percent is not “the industry is broken.” It is “this metric is a late-stage filter.” Aleph draws the practical line around $20 million ARR: below that, growth rates are volatile and margin swings are large, so the combined score jumps around with them. Early-stage, the honest pair is growth rate plus unit economics (Aleph’s related medians: 16-month CAC payback, Magic Number 1.37). Paste 40 onto a $3 million ARR company and you will either starve a working motion or congratulate a noisy quarter.

SaaS Capital’s 2026 growth brief is the other scale check. Median growth for the full private B2B sample is 22%, down from 25% in 2024; 7.3% of companies were flat or negative. Bootstrapped median: 20%. Equity-backed: 25%. Inside the bootstrapped $3 million to $20 million ARR band, median growth is 15% (90th percentile 42.3%). At 15% growth and breakeven the score is 15 — arithmetic, and only if margin is actually 0%. That can be on benchmark for a bootstrapped peer set. It is 25 points short of 40.

BCG’s keepers versus leaky buckets is the motion check, not a second churn report. High GRR plus lower new-customer ACV clears Rule of 40 more often. High-ACV, low-GRR “leaky buckets” had the highest median revenue in the sample ($57 million versus $40 million for keepers) and still underperformed. Transactional businesses with GRR below 80% were the exception — 23% average Rule of 40, and about 80% of them had ACV under $18,000. If GRR is the hole, fix it before you add another growth dollar; that leak is already sized in the 2026 SaaS churn rate report.

How to set your number without copying 40

1. Pick the sample that matches you. Private B2B, mixed funding: Aleph’s 25% median and 43% top quartile, on 2025 actuals. Public comps: SaaSDB’s 32.8 FCF median. PE-backed and scaling through $30 million: BCG’s 9 / 22 / 26 percent clearing rates. Sub-$20 million ARR: report growth and payback, and treat Rule of 40 as a trajectory, not a grade.
2. Lock the margin definition. EBITDA if you want Feld and most private surveys. FCF if you want public comps and Bessemer. Write it at the top of the slide. Do not switch when the score looks better.
3. Publish the two inputs, not just the sum. A 25 from 40% growth and −15% margin is a different company from a 25 from 10% growth and 15% margin. The Aleph 31–50% growth cohort at a median score of 8 is what happens when you chase the growth half without a margin plan.
4. Move spend on the lines that actually make the score. SaaS Capital’s 2026 department medians: marketing 8% of ARR, selling 15%, R&D 22%, G&A 15%, customer success 9%. Rule of 40 improves when growth holds and those percentages fall without breaking the motion. BCG: companies that raised S&M spend while GTM was already inefficient were the only group with a negative Rule of 40 overall. Adding SDRs to a broken funnel is a score cut. People dominate those lines — B2Bcentr’s 2026 payroll spending report puts fully loaded US private-sector compensation near $96,900 per employee.
5. Use Rule of X as a second lens, not a replacement. If you are near or past FCF-positive and a board member is treating a 20-point margin and a 20-point growth rate as equivalent, run Bessemer’s 2x private multiplier next to the classic score. Do not throw out 40. Show both.

A one-page math check before the board meeting:

1. Growth % from the same period you will use for margin (YoY ARR or YoY MRR, not a three-month annualization).
2. Margin % on the definition you locked.
3. Score = growth + margin. Circle 40 as the investor bar, 25 as the 2025 private median, 43 as the private top quartile, 32.8 as the public FCF median.
4. Implied margin to hit 40 = 40 − your growth. At SaaS Capital’s 22% median that is 18 points. At Aleph’s 20% it is 20.
5. Rule of X (optional) = (growth × 2) + FCF margin for a private company.

If those five numbers do not fit on one slide, the 40 was never your number. Change the sample, the margin definition, or the stage assumption. Do not change Feld.

FAQ

What is a good Rule of 40 score for a SaaS company in 2026?

Forty remains the investor bar, and Aleph’s top-quartile threshold (43%) on 2025 actuals. The private median in that sample is 25%. Public SaaS on FCF sits at a 32.8 median (SaaSDB, 172 companies, 15 June 2026), with 61 names at 40 or above. “Good” is 40-plus at scale. “Typical” is still short of 40.

How do you calculate the Rule of 40?

Add year-over-year revenue growth to profit margin. Feld used YoY MRR growth and EBITDA. Private surveys usually use ARR growth and EBITDA; public tables usually use reported revenue growth and FCF margin. A company growing 30% with a 15% margin scores 45. Hold the period and the margin definition constant.

Does the Rule of 40 use EBITDA or free cash flow?

Either, as long as you do not mix them. EBITDA is the private-company default and the basis of Feld’s 2015 post. Free cash flow is what SaaSDB, Bessemer, and most public comps use. Switching from EBITDA to FCF can move the score by more than the gap between “median” and “bar.”

Is the Rule of 40 still relevant for early-stage SaaS?

Not as a pass/fail. Feld scoped it to companies at scale (on the order of $50 million of revenue). BCG finds only 9% of PE-backed B2B SaaS companies below $30 million of revenue clear it. Aleph treats it as noisy below about $20 million ARR and points to growth rate and CAC payback instead. Below that scale, a rising trajectory toward 40 matters more than this quarter’s print.

What is the Rule of X, and should it replace the Rule of 40?

Bessemer’s Rule of X is (growth rate × a 2x–3x multiplier) + FCF margin. A point of growth compounds in a DCF; a point of margin does not. It does not replace 40 in a board pack. For private companies Bessemer’s published weight is about 2x.

Methodology

Figures are taken from primary publications, not from secondary “Rule of 40 2026” roundups.

• Aleph × Benchmarkit, 2026 SaaS & AI Performance Benchmarks (1 June 2026). 342 B2B SaaS and AI-native companies; Rule of 40 from 110 respondents; CY-2025 actuals. Median 25 / top quartile 43 / 25th percentile 7; R&D and S&M cuts; growth-band table; ~$20 million ARR line; 16-month CAC payback and 1.37 Magic Number as related unit-economics medians.
• SaaSDB leaderboard, 15 June 2026, 172 public companies from SEC EDGAR, FCF definition. Median 32.8; 61 companies at 40+; HubSpot / Salesforce / Datadog. The 35 percent share is arithmetic from 61 ÷ 172.
• BCG with seven growth-equity funds, 107 private B2B SaaS portfolio companies. Clearing rates by revenue; keepers / leaky buckets / transactional split; negative Rule of 40 when S&M was scaled on an inefficient GTM.
• SaaS Capital, 15th annual survey completed March 2026 (spending, 10 June 2026) and 2026 growth brief, 1,000-plus private B2B SaaS companies. Growth 22% (25% in 2024), funding split, department spend, 96% vs 101% total spend. August 2025 Rule of 40 note: medians of the inputs do not sum to the median score. No 2026 SaaS Capital Rule of 40 median is published on the pages fetched, so none is invented here.
• KeyBanc / Sapphire, 16th annual Private Company SaaS Survey, 13 November 2025 press release. Expected ARR growth 15% → 20%; EBITDA expected to breach profitability in 2026.
• Brad Feld, 2 February 2015, original formula, $50 million scale caveat, worked pairs, EBITDA preference.
• Bessemer Venture Partners, Rule of X: 2x–3x growth weighting, 30/15 example, late-2023 BVP Cloud Index averages (~31% Rule of 40, ~50% Rule of X).

Implied margin-to-hit-40 figures are arithmetic from published growth rates, not surveyed scores. Recheck these sources before you lock a 2027 board pack.