HeadwaterCompany strategiesBuild yours

Xero

Win the 3x3, FY25 to FY27

Our 3x3 strategy is hitting its stride
Sukhinder Singh Cassidy, Xero’s CEO, May 2026

Win the 3x3

Xero makes online accounting software for small businesses and their accountants, used by about 4.9 million customers. Its strategy for FY25 to FY27 has four parts, led by the 3x3: doing three jobs, accounting, payroll, and payments, well in its three largest markets, Australia, the UK, and the US.

Win the 3x3

  • Payments in the USUnite accounting and payments in the US by integrating Melio, the bill pay platform it bought.
  • Payroll in the USOffer payroll inside Xero in the US through Gusto, now in beta.
  • Tax in the UKHelp UK customers with Making Tax Digital for Income Tax through Xero Simple.
  • 14 May 2026US core revenue rose 240%, or 30% without Melio, and Xero added 110,000 US customers. Bill payments powered by Melio launched in March 2026.
  • 14 May 2026Payments revenue rose 53%. UK revenue rose 26%, and UK customers 14%.,

Twice FY25’s revenue by FY28

Xero’s revenue grew 31% to $2.8 billion in FY26, and it guides $3.6 billion to $3.7 billion for FY27. When it agreed to buy Melio, it set an aspiration to more than double FY25’s $2.1 billion in FY28, and to return to Rule of 40 outcomes that year.,

$2.1bnFY25$2.8bnFY26$3.62–3.73bnFY27 guidance>$4.2bnFY28 aspiration

Each slip is $100 million of operating revenue. FY27 is guidance: filled slips are FY26’s revenue, outlines run to the bottom of the range, dashed ones to the top. FY28 is the aspiration of more than double FY25, excluding expected revenue synergies.,

A Rule of 40 outcome of 48.5% in FY26

Xero measures itself by the Rule of 40: revenue growth in constant currency plus free cash flow as a share of revenue. It reached 48.5% in FY26. Counting Melio for the whole year, the figure was 36.0%, and Xero expects to stay below 40 on that basis until FY28, when it aims to be above it again.,

  • FY2544.3
  • FY2648.5
  • FY26 pro forma, with Melio all year36.0

40.0 rule

Rule of 40 outcomes, in %.

  1. Name the grid you are playing on.

    Xero’s 3x3 says exactly where it competes: three jobs in three markets. We recommend drawing the few products and markets that matter most as a simple grid, so everyone knows which squares get the investment.

  2. Pair growth with a discipline number.

    Xero aims for Rule of 40 outcomes, revenue growth plus free cash flow margin of at least 40%, and said it would dip below that while it absorbs Melio. We recommend pairing any growth target with one that keeps it honest, and saying in advance when you expect to miss it.

  3. Set the aspiration when you make the bet.

    When Xero agreed to buy Melio, it set out what the deal should deliver: more than double FY25 revenue by FY28, and Melio breaking even on a run-rate basis in the second half of FY28. We recommend stating what a big move must achieve, and by when, at the moment you make it.

Sources

  1. 1. Xero Limited (2026). Xero delivers strong FY26 results. ASX market release, 14 May 2026. s2.listcorp.com
  2. 2. Xero Limited (2026). FY26 Annual Results investor presentation. ASX announcement, 14 May 2026. s2.listcorp.com

Headwater is not connected with Xero. Xero, JAX, XeroForce, Melio, Gusto, Syft, and Claude are trade marks of their owners. Updated 29 September 2026.

All company strategies