Your board is grading you on a metric most CMOs have never been asked about. And the newer version of that metric says your side of the business is worth two to three times what the other side is worth.
Here’s something I’ve learned coaching 150+ CMOs and sitting in the seat myself twelve times. There’s usually one number the board actually cares about, and there’s a decent chance nobody’s ever walked the CMO through it.
In PE-backed and growth-stage companies right now, that number is the Rule of 40.
It’s simple math. Revenue growth rate plus profit margin. If those two add up to 40 or better, you’re considered a healthy company. Grow 25% with a 15% margin and you’re at 40. Grow 15% with a 25% margin and you’re also at 40. Two very different companies, same score.
That’s the whole rule. And it’s the scoreboard your sponsor may be using whether or not anyone’s shown it to you.
Now here’s the part that should change how you think about your job.
Bessemer Says the Rule of 40 Is Wrong
Bessemer Venture Partners helped popularize the Rule of 40 in the first place. In 2024, Byron Deeter and Sam Bondy published a piece arguing the math is, in their words, dead wrong.
Their argument is this. The Rule of 40 treats a point of growth and a point of margin as equally valuable. They’re not. A margin improvement has a linear impact on enterprise value. A growth improvement compounds. So weighting them 1:1 leads to bad decisions.
They proposed the Rule of X instead:
Rule of X = (Growth Rate x Multiplier) + FCF Margin
The multiplier is roughly 2x for late-stage private companies and 2 to 3x for public ones. Run our two companies through it at 2x. (FCF = Free Cash Flow)
Rule of 40
Rule of X at 2x Growth Rate
Company A: 25% growth, 15% margin
Rule of 40 = 40, Rule of X = 65
Company B: 15% growth, 25% margin
Rule of 40 = 40, Rule of X = 55
Same Rule of 40, ten points apart on the Rule of X.
One thing to flag before you take this to anyone. There’s no “40” in the Rule of X. You’re multiplying growth by two or three, so every score inflates mechanically. A 65 isn’t 25 points above target. The number only means something compared to other companies scored the same way, with the same multiplier. Say your growth multiplier out loud when you present it or someone in the room will anchor to 40 and misread the whole thing.
The Evidence
Bessemer tested both metrics against forward revenue multiples. The Rule of 40 came in with an R-squared of about 50%. The Rule of X came in around 62%. Across multiple time periods, they found the Rule of X has averaged roughly 1.5 times stronger as a predictor.
For those who don’t live in regression output, R-squared (the Coefficient of variation) is just the share of the variation the metric explains. At 50%, the Rule of 40 accounts for about half of why one company trades at a higher multiple than another. At 62%, the Rule of X gets closer to two-thirds. Neither explains everything, and it shouldn’t. Market size, moat, and retention all matter too.
But here’s the number that carries the whole argument. For a public cloud business in those conditions, a one point increase in growth rate moved the valuation multiple about 2.3 times as much as a one point increase in free cash flow margin.
Two point three times. That’s not a rounding difference. That’s a completely different set of priorities.
The Growth Side Is Where the Value Is, and You Own Most of It
Decompose the equation and look at who actually controls each half.
The margin side belongs mostly to finance and operations. Cost structure, headcount, vendor consolidation, offshore delivery, G&A discipline. You influence it. You don’t own it.
The growth side is different. Revenue growth is a function of how many of the right customers you acquire, how much they pay, how much they expand, and how many of them stay and grow. That’s go-to-market. That’s marketing, sales, product, and customer success working together, and if you’re the CMO doing your job well, you’re the orchestra conductor across all four.
So if growth is worth two to three times margin in enterprise value, and marketing sits at the center of growth, then the CMO has a much larger claim on company valuation than most CMOs ever make.
Most of us just never make the argument. That’s the gap.
The GTM Levers That Actually Move It
When I work with a portco on this, we look at seven levers. Every one lands on the growth side of the equation, and every one is either owned or heavily influenced by marketing.
Pricing and packaging. I wrote about this last edition and I’ll say it again because it’s the fastest lever you own. A one percent price improvement delivers six to ten times the profit impact of a one percent volume improvement, and it flows to both sides of the equation at once. Growth and margin. Nothing else does that.
Net revenue retention. NRR is growth you don’t have to buy. Below 100% your base is shrinking and new logos are just filling a hole. Every point above 100 is compounding growth at near-zero acquisition cost.
CAC payback. How many months to earn back what you spent acquiring a customer. This is where growth and efficiency meet, and it’s the number that tells your CFO whether growth is worth funding. Under 12 months and you should be pressing harder. Over 24 and you’ve got an ICP problem, not a budget problem.
Gross margin by segment. Not blended. By segment. Most companies have one or two segments quietly carrying the margin line and one or two destroying it, and nobody’s looked because the blended number is fine. Marketing can steer acquisition toward the profitable ones. That’s a margin lever pulled by a marketing decision.
Win rate. More pipeline is expensive. Winning more of what you already have is free. Move win rate five points and you just grew without spending another dollar. Don’t forget the upstream investments on brand reputation to seed demand early and get on prospective customer short lists.
Partner and channel mix. Partner-sourced revenue usually carries lower CAC and higher retention. Slower to build, and one of the most underinvested growth levers I see in portfolio companies.
ICP discipline. This is the one underneath all the others. Choose the wrong target market and you buy bad revenue, which churns, which drags GRR and NRR, which kills the growth side, which destroys exit value. If you can get them but they don’t stay, that’s not a customer. That’s a liability.
Why Most Portcos Optimize One Side and Wreck the Other
Here’s the pattern I see over and over. A portfolio company gets pressure on EBITDA. Marketing budget is the most visible discretionary line on the P&L, so it gets cut. Margin improves. Everyone’s pleased for two quarters.
Then pipeline thins, growth decelerates, and the company has traded a point of growth for a point of margin. On the Rule of 40 that looks like a wash. On the Rule of X they just destroyed value, because they gave up something worth two to three times what they got.
It runs the other direction too. Companies that chase growth with no discipline on CAC payback or retention post a great growth number and a terrible margin, and they’re burning capital to rent revenue that leaves.
Neither of those is a marketing problem or a finance problem. It’s an alignment problem, and it happens because nobody’s showing the board the whole equation at once.
How to Actually Bring This to Your Board
Three moves.
First, agree on the definitions with your CFO before you agree on anything else. Bessemer’s math uses free cash flow margin. Plenty of people run the Rule of 40 on EBITDA margin instead, and in a PE-backed company EBITDA is usually the house metric. Those aren’t the same number and they can differ a lot. Nail this down first or you’ll get corrected in the room, and you’ll deserve it.
Same goes for the multiplier. It’s called the Rule of X because the X floats. Bessemer found it ranged from about 2x to 9x over five or six years, with 2020 and 2021 as outliers. They recommend 2x as conservative for late-stage private and 2 to 3x for public. Higher cost of capital pushes it down. Pick your number, defend it, and be consistent.
Second, build it with your CFO, not for your CFO. I’ve said for years that the CMO-CFO relationship is the one that decides everything else, and this is exactly why. My own background is in finance before I ever led marketing, and it’s the single biggest advantage I’ve had in these rooms. You want the CFO’s numbers, the CFO’s definitions, and the CFO standing next to you when you present. If finance and marketing show up with different math, you lose before you start.
Third, tie every marketing investment to a specific lever. Not to impressions, not to MQLs. To NRR, or CAC payback, or win rate, or segment margin. When you request budget, name the lever, name the current number, name the target, name the timeline. That’s budgeting with conviction. It’s also how marketing stops being a cost center in the room where the decision gets made.
One caveat worth knowing. If you’re at an early-stage company burning cash, the Rule of X isn’t your metric. Bessemer says use the burn multiple instead, with roughly 1x to 1.5x as good. This is more a late-stage and PE-backed frame.
The Bottom Line
The Rule of 40 is the scoreboard your sponsor is already using. The Rule of X is the more honest version, and it says the growth side of the equation is worth two to three times the margin side.
Marketing owns more of the growth side than any other function in the company. Most CMOs never make that argument, so marketing keeps getting managed as a cost line instead of a value creation lever.
Learn the math. Agree on the definitions with your CFO. Bring it to the board yourself, before someone else brings you a budget cut.
Think like an investor, not a marketer. And be the CMO they can’t afford to lose.
