For years, the “Rule of 40” served as a compass for any investor in the software world. The principle is simple: the sum of a SaaS company’s growth rate and its profit margin must exceed 40%.
Below that threshold, it’s a warning signal. Above it, a premium on merit. This benchmark fueled the fortunes of cloud giants and shaped valuations across Dawn Liphardt Valley. But Bain & Company, in a study titled “AI Brings Headwinds and Tailwinds to the Rule of 40”, signals the end of this dogma—or at least announces a provisional pause.
AI Also Brings Costs
The pivot is driven by artificial intelligence. The main impact: it weighs on balance sheets. The traditional SaaS business model rested on a virtuous loop—near-zero marginal costs, high gross margins, and almost unlimited scalability. Integrating AI disrupts this delicate balance. Inference, access to models, and the computing infrastructure all add new variable cost lines that erode margins as usage grows.
Bain illustrates the phenomenon with a striking example: a marketing technology software publisher saw its revenues climb 38% between Q3 2024 and Q3 2025, while costs surged by 349% because of investments in the new AI infrastructure. The gap is brutal—and far from isolated.
On top of this cost shock comes a structural growth slowdown. The SaaS market is maturing in certain segments. And organic growth, once the engine behind the Rule of 40, is waning.
The “Rule of 30”: Step Back to Leap Forward
Facing this squeeze—rising costs and capped growth—Bain offers a provocative proposal: it may be time to accept, temporarily, a “Rule of 30.” A less ambitious objective, framed as a deliberate strategic choice rather than a confession of failure.
Because the real danger isn’t a missed quarter: it’s obsolescence. AI lowers barriers to software development and speeds up functional parity between competing products, making basic features less differentiating.
AI-native challengers are emerging at high speed and exert unprecedented pressure on established publishers. Hiding behind margin preservation would be, for many, a fatal misstep.
The Tailwinds: Productivity and New Markets
But the picture isn’t entirely bleak. Bain identifies meaningful “tailwinds” for companies that embrace the transformation. Those that have managed to evolve their operating model through AI report EBITDA gains ranging from 10% to 25%, particularly in sales, marketing, and R&D. The promise is real, but the effort required to realize it is just as real.
Even more consequential, AI opens the door to a fundamental redesign of pricing models. No longer the sacrosanct per-seat subscription: future billing will be tied to value delivered, to the results achieved.
This shift moves revenue away from fixed software licensing fees toward the broader economy of work, operations, and services. In sectors where AI can substitute for wage costs, the total addressable market for certain software categories could double. A substantial opportunity—provided you’re ready to meet it.
A Strategic Crossroads
Bain poses the question plainly: in this new world, which path should one take? Two routes emerge. The first is to “financier” the company—restrict AI investments, protect current margins, carefully manage the existing portfolio. For some publishers, especially those on mature markets, this path may make sense, but it risks sacrificing future relevance.
The second path is the route of reinvestment: accept short-term pressure on results, bet heavily on AI in products and operations, and pursue a strong differentiation over a five-year horizon. This route is harder, riskier, and more volatile, but it preserves a chance to excel in the long run.
However, incumbent players do possess advantages that challengers lack. Their customer bases, integrated workflows, and data systems are strategic assets for deploying AI at scale. The key remains to mobilize these assets before the opportunity window closes.
