Rules of thumb are shortcuts: quick numbers that tell you where to look closer. They are filters, not strategy. Nobody built a good company by managing a number to 40.
Almost all of these come from US venture capital and SaaS. Outside that world, for example in a high-inflation market or a non-software business, keep the logic and recalibrate the number. Rules marked Folklore have no solid original source; teach them as industry lore, not as research.
Revenue growth rate + profit margin should be at least 40%.
Source: Popularised by Brad Feld, "The Rule of 40% For a Healthy SaaS Company", Feld Thoughts, February 2015. Fred Wilson wrote about it around the same time.
Growth rate × a multiplier (about 2 for private companies, 2–3 for public) + free-cash-flow margin. Gives growth more weight than profit.
Source: Byron Deeter and Sam Bondy, Bessemer Venture Partners, "The Rule of X", 2023.
72 ÷ annual growth rate = years until a number doubles. At 20% a year, revenue doubles in about 3.6 years.
Source: Earliest written mention: Luca Pacioli, Summa de arithmetica, 1494.
A customer's lifetime value should be at least three times what it cost to acquire them. Below 1 you lose money on every customer; far above 5 you are probably underinvesting in growth.
Source: David Skok, "SaaS Metrics 2.0", forEntrepreneurs.
Gross margin from a customer should pay back their acquisition cost within about 12 months for SMB; 18–24 months can be fine for enterprise.
Source: David Skok, "SaaS Metrics 2.0", forEntrepreneurs.
(This quarter's new ARR × 4) ÷ last quarter's sales and marketing spend. Above 0.75, spend more on sales; below 0.5, the sales engine isn't working.
Source: Concept from Josh James (Omniture), formalised by Scale Venture Partners; thresholds popularised by Lars Leckie, Hummer Winblad, 2008.
Net cash burned ÷ net new ARR. Under 1 is excellent, 1–2 is fine, above 3 is a warning sign.
Source: David Sacks, Craft Ventures, "The Burn Multiple", 2020.
If revenue from existing customers, after churn and upgrades, grows past 100%, you grow even with no new customers. 120%+ is best in class for SaaS.
Source: No single origin; established by Bessemer's cloud benchmarks, the KeyBanc SaaS Survey and Tomasz Tunguz's writing.
The path to $100M ARR: after reaching $2M, triple for two years, then double for three years.
Source: Neeraj Agrawal, Battery Ventures, "The SaaS Adventure", TechCrunch, February 2015.
Below this range, the business is probably closer to services than software.
Source: Industry benchmark from KeyBanc, SaaS Capital and Bessemer data, not a formal rule.
If at least 40% of users say they would be "very disappointed" without your product, you have product-market fit.
Source: Sean Ellis, startup-marketing.com, 2009; later in Hacking Growth (2017). Based on his own work with startups, not an academic study.
People need to see a message about seven times before they act. The exact number doesn't matter; repetition does.
Source: Marketing folklore, often traced to 1930s Hollywood with no primary evidence. The nearest science is the mere-exposure effect (Robert Zajonc, 1968).
Roughly 80% of results come from 20% of causes: revenue from customers, traffic from pages, problems from root causes. Always ask where your 20% is.
Source: Vilfredo Pareto, 1896; named the Pareto principle by Joseph Juran in the 1940s.
70% on what already works, 20% on emerging channels, 10% on high-risk experiments.
Source: Marketing version: Coca-Cola, 2011 (Wendy Clark). Innovation version: Google, about 2005. Learning version: Center for Creative Leadership, 1980s.
A visitor should understand what your page is and who it's for within five seconds, or they leave.
Source: The five-second test, Christine Perfetti, UIE, 2007; Nielsen Norman Group research on first-seconds decisions.
In most online communities, 1% create content, 9% interact, and 90% only read. Plan community and UGC accordingly.
Source: Jakob Nielsen, "Participation Inequality", Nielsen Norman Group, 2006.
Keeping a customer is often said to be about 5× cheaper than winning a new one. Treat the number loosely; the principle holds.
Source: Often credited to Reichheld & Sasser, "Zero Defections", HBR 1990, but the number isn't there; the "5 to 25 times" range comes from Amy Gallo, HBR, 2014, citing Bain.
Decide the sample size before an A/B test starts and run it for at least one full business cycle (usually 1–2 weeks). Don't stop when the result looks good.
Source: Ron Kohavi et al., Trustworthy Online Controlled Experiments (book), 2020; Evan Miller on peeking.
A new product must be about ten times better than what people use now before they bother to switch, because people overvalue what they already have.
Source: Peter Thiel, Zero to One (book), 2014; behavioural basis in John Gourville, "Eager Sellers and Stony Buyers", HBR, 2006.
Fixing a problem costs 1 unit in design, 10 in development and 100 once it reaches the customer.
Source: George Labovitz and Yu Sang Chang, Making Quality Work (book), 1992; earlier IBM studies on the cost of defects.
The more options, the slower the decision. Keep choices few, for example three pricing plans.
Source: William Hick, 1952, and Ray Hyman, 1953, experimental psychology.
Focus the first version on one to three core jobs, not ten features.
Source: The term MVP comes from Frank Robinson, 2001, popularised by Eric Ries, The Lean Startup, 2011. The "three features" number is product folklore.
About 40% of the effort on analysis and design, 20% on coding and 40% on testing.
Source: Roger Pressman, Software Engineering: A Practitioner's Approach (book), first edition 1982.
Offer three price tiers. The middle one is the real target; the other two anchor it.
Source: Rafi Mohammed, "The Good-Better-Best Approach to Pricing", HBR, 2018; anchoring and decoy effects from Dan Ariely, Predictably Irrational, 2008.
Ask customers four questions (too cheap, cheap, expensive, too expensive) to find an acceptable price range. If almost nobody says "too expensive", your price is probably low.
Source: Peter Van Westendorp, Price Sensitivity Meter, 1976. The "nobody complains" heuristic is common VC advice, not part of his method.
Keep about three times your sales target in the pipeline. Work out your own ratio from your real win rate.
Source: Common sales-team rule with no single origin; repeated by Salesforce, HubSpot and Gong.
For prices under $100, show discounts as a percentage (20% off); above $100, as an amount ($100 off). Whichever number is bigger feels like the better deal.
Source: Jonah Berger, Contagious (book), 2013.
A team should be small enough to be fed by two pizzas, roughly six to eight people.
Source: Jeff Bezos, Amazon, around 2002; documented in Brad Stone, The Everything Store (book), 2013.
For any decision, ask how you will feel about it in 10 minutes, 10 months and 10 years.
Source: Suzy Welch, first in O, The Oprah Magazine, 2006; then the book 10-10-10, 2009.
Build every message, deck or strategy around three points. People remember three; more blurs.
Source: Rooted in classical rhetoric; marketing research by Kurt Carlson and Suzanne Shu, "When Three Charms but Four Alarms", Journal of Marketing, 2014.
After each funding round, have at least 18 months of cash so you never negotiate under pressure. Many VCs moved this to 24 months after 2022.
Source: Common VC advice with no single origin; repeated by Fred Wilson, Mark Suster and Y Combinator.