How B2B SaaS Companies with Rule of 40 Score Above 30 Measure and Improve Growth Rate
Feb 19, 2025
TL;DR
Understanding growth benchmarks in B2B SaaS is crucial for measuring performance. The median annual growth rate for private SaaS companies is around 30-40%, while top performers exceed 60%+ (YoY). Factors like retention, pricing, and sales efficiency play a critical role in sustainable scaling. Learn how to benchmark your growth and improve key metrics. And of course, it depends on which Company phase you are and your GTM strategy.
Understanding SaaS Metrics
SaaS Metrics for Measuring Growth and Profitability
In the SaaS industry, key performance indicators (KPIs) are essential for gauging a company’s growth and profitability. These metrics offer valuable insights into financial health, customer acquisition, retention, and revenue streams. Here are some critical SaaS metrics to monitor:
Monthly Recurring Revenue (MRR): This metric represents the total revenue generated by a SaaS company from its customers on a monthly basis. It’s a vital indicator of consistent revenue flow.
Annual Recurring Revenue (ARR): Similar to MRR, ARR measures the total revenue generated annually. It’s crucial for understanding long-term revenue growth.
Revenue Growth Rate: This percentage change in revenue over a specific period, typically measured quarterly or annually, helps track the company’s revenue growth rate.
Customer Acquisition Cost (CAC): CAC includes all sales, marketing, and advertising expenses incurred to acquire a new customer. Lowering CAC is key to improving profit margins.
Customer Lifetime Value (CLV): CLV calculates the total revenue a customer generates over their lifetime, minus the cost of acquiring and serving them. It’s essential for understanding customer value.
Churn Rate: This metric indicates the percentage of customers who cancel their subscriptions or stop using a SaaS product over a specific period. A lower churn rate is indicative of better customer retention.
EBITDA Margin: EBITDA margin measures a company’s profitability by dividing earnings before interest, taxes, depreciation, and amortization (EBITDA) by revenue. It’s a critical indicator of financial health.
Importance of Tracking Revenue Multiples and Profit Margin
For SaaS companies, tracking revenue multiples and profit margins is crucial for understanding valuation and financial health. These metrics provide insights into how well a company is performing relative to its revenue and profitability.
Revenue Multiples: Revenue multiples, such as the price-to-sales (P/S) ratio, are used to evaluate a company’s valuation relative to its revenue. This metric is particularly useful for comparing the valuation of different SaaS companies.
Profit Margin: Profit margin, calculated by dividing net income by revenue, measures a company’s ability to generate profits from its revenue. Higher profit margins indicate better financial efficiency and profitability.
Key Growth Benchmarks by Company Stage
The top quartile of SaaS businesses with ARR between $1 and $30 million grew 62.1% in 2022, compared to 93.4% in 2020. (Chartmogul)
The SaaS Growth Rate Rule of 40
The Rule of 40 states that a healthy SaaS company should have its revenue growth rate plus its profit margin equal to 40% or more.
✅ Example: If a company is growing at 35% annually with a 10% profit margin, it achieves a 45% Rule of 40 score, signaling strong performance.
🔴 Conversely, a company growing at 20% with a -10% profit margin falls below the threshold, indicating inefficiencies.
Growth rate is positively and exponentially correlated with net revenue retention. (SaaS Capital)
Understanding growth benchmarks in B2B SaaS is crucial for measuring performance. The median annual growth rate for private SaaS companies is around 30-40%, while top performers exceed 60%+ (YoY). Factors like retention, pricing, and sales efficiency play a critical role in sustainable scaling. The company's revenue growth rate is a critical component that reflects the percentage increase in revenue over a specific period, highlighting its importance for assessing both growth and profitability. Learn how to benchmark your growth and improve key metrics. And of course, it depends on which Company phase you are and your GTM strategy.
Profitability trends in SaaS companies are also essential to monitor. EBITDA margins indicate a shift towards profitability, showcasing improvements over multiple quarters. These margins serve as a benchmark for calculating financial performance through measures like the Rule of 40.
B2B SaaS Growth Benchmarks: How Fast Should Your Company Grow?
Growth is the ultimate measure of success for private B2B SaaS companies. 📈 But how fast should you be growing? Comparing your revenue expansion to industry benchmarks helps determine if your business is on track. Additionally, comparing growth rates with peer SaaS companies can provide valuable insights into your competitive positioning and highlight areas for improvement.
Why Growth Benchmarks Matter
Investors, founders, and SaaS operators rely on growth benchmarks to assess performance. If your company isn’t growing at a competitive rate, it could be a sign of deeper inefficiencies in customer acquisition, retention, or pricing strategy. Additionally, understanding your profitability margin alongside growth benchmarks is crucial for a comprehensive financial analysis, as it helps compare companies with diverse operating structures and stages in their business cycle.
Key Growth Benchmarks by Company Stage
The top quartile of SaaS businesses with ARR between $1 and $30 million grew 62.1% in 2022, compared to 93.4% in 2020. A SaaS company's growth rate is crucial in evaluating its performance at different stages, as it helps investors assess the financial health and long-term success potential by combining growth rate with profit margins through the Rule of 40 metric. (Chartmogul
The SaaS Growth Rate Rule of 40
The Rule of 40 states that a healthy SaaS company should have its revenue growth rate plus its profit margin equal to 40% or more.
✅ Example: If a company is growing at 35% annually with a 10% profit margin, it achieves a 45% Rule of 40 score, signaling strong performance.
🔴 Conversely, a company growing at 20% with a -10% profit margin falls below the threshold, indicating inefficiencies.
A strong cash flow is crucial in achieving a high Rule of 40 score, as it ensures the company can sustain operations and invest in growth while maintaining profitability.
Growth rate is positively and exponentially correlated with net revenue retention. (SaaS Capital
Factors That Impact SaaS Growth
1. Net Revenue Retention (NRR) and Annual Recurring Revenue (ARR) 📉
A SaaS company's retention is a key driver of sustainable growth. High-growth SaaS companies often have NRR above 110%, meaning expansion revenue from existing customers offsets churn.
Low NRR (< 90%) → High churn, weak expansion
Healthy NRR (100-110%) → Stable growth
High NRR (110%+) → Strong upsell/cross-sell strategy
2. CAC Payback Period ⏳
The Customer Acquisition Cost (CAC) payback period measures how long it takes to recover acquisition costs.
Best-in-Class: < 12 months
Industry Average: 12-18 months
Inefficient: >18 months
Shorter payback periods mean faster growth without excessive cash burn. SaaS companies often achieve shorter CAC payback periods compared to other software companies, highlighting their financial efficiency.
3. Sales Efficiency & GTM Strategy 🎯
Efficient SaaS companies achieve higher growth rates by:
Optimizing sales team performance (lowering customer acquisition costs)
Leveraging product-led growth (PLG) for self-serve adoption
Expanding into new markets or segments
📌 Example: PLG-first SaaS businesses like Slack or Zoom grow faster due to frictionless adoption and lower sales overhead.
These strategies are crucial for any SaaS business to maintain a balance between growth and profitability, often evaluated using the Rule of 40 framework.
SaaS Valuation and Growth
How Public SaaS Companies are Valued in the Market
Public SaaS companies are valued based on several key factors, including revenue growth, profitability, and market position. Investors and analysts use various metrics to assess a company’s valuation, ensuring they make informed investment decisions. Here are some critical factors influencing the valuation of public SaaS companies:
Revenue Growth Rate: A high revenue growth rate often leads to a higher valuation multiple. Investors favor companies that demonstrate rapid growth and potential for future expansion.
Profitability: Companies with high profit margins are typically valued more highly than those with lower margins. Profitability indicates efficient operations and financial health.
Market Position: Companies with a strong market position, such as a dominant market share or a unique value proposition, tend to be valued more highly. A robust market position signifies competitive advantage and stability.
Growth Potential: Companies with high growth potential, such as those in emerging markets or with innovative products, are often valued more highly. Growth potential indicates future revenue streams and market expansion opportunities.
By understanding these metrics and factors, SaaS companies can better navigate the complex world of valuation and growth, making informed decisions to drive their business forward.
📌 Example: PLG-first SaaS businesses like Slack or Zoom grow faster due to frictionless adoption and lower sales overhead.
How ReactIn Can Help You Scale Faster
SaaS growth isn’t just about revenue—it’s about acquiring the right customers efficiently. enables B2B SaaS companies to:
Identify high-value prospects on LinkedIn with enriched data.
Automate personalized outreach to scale customer acquisition efforts.
Improve sales conversion rates by targeting leads with high buying intent.
ReactIn can significantly benefit any SaaS business by enhancing these key growth strategies.
📌 Pro Tip: Use ReactIn to prioritize outreach to companies with high engagement signals, shortening the sales cycle.
Conclusion: Measure, Improve, and Scale
Knowing where your SaaS company stands in terms of growth benchmarks helps refine your strategy. Whether you're optimizing retention, refining your GTM approach, or improving CAC efficiency, benchmarking against top SaaS performers ensures sustainable scaling.
🔥 Ready to see the difference? Explore ReactIn and discover how it can revolutionize your approach.
Sign up for ReactIn for free and without a credit card to start optimizing your campaigns today.
Théo R.
FAQ
1. What is a good growth rate for a B2B SaaS startup?
For early-stage SaaS companies (<$1M ARR), 100%+ annual growth is a strong target. For mid-sized companies ($10M+ ARR), 30-50% growth is considered healthy.
2. What is the Rule of 40 in SaaS?
The Rule of 40 states that a company’s growth rate + profit margin should equal at least 40% to indicate a sustainable business model.
3. How can I improve my SaaS company’s growth rate?
Focusing on customer retention (NRR > 110%), reducing CAC payback period, and optimizing sales efficiency are key strategies for boosting growth.
