Prior Authorization Break-Even: $98K Monthly Revenue to Stay Viable

Fixed costs $42.3K/mo Base overhead

Contribution margin 82% After variable costs

Break-even revenue $51.6K/mo Monthly target

Break-even timing Month 7 Model payback point

Break-even calculator

Test whether monthly revenue covers variable expenses and fixed monthly costs for a medical prior authorization service.

Lean Base Full

Monthly revenue Revenue is the main buffer that pays for overhead after direct costs. $ Slow start Busy month Variable expenses Use direct costs that rise with claim volume, like hosting and referral fees. $ Tight spend Higher spend

Money available to cover fixed costs $87,945 $107,250 revenue - $19,305 variable expenses

Margin ratio

82%

Covers fixed costs

Yes

Fixed monthly costs This is the monthly overhead the margin has to cover. $ Lean overhead Heavy overhead

Break-even chart Revenue Total costs

Which expenses are fixed and which move with sales in a prior authorization service?

Cost classification

Break-even gets reliable only when true overhead is separated from revenue-linked work. Here, fixed monthly overhead anchors the model, while hosting, referral fees, staffing steps, and marketing efficiency change the revenue needed to reach Month 7 break-even.

Expense	Cost	Break-Even Treatment	Common Mistake
Office Lease	Fixed	Include $6,500 per month in baseline overhead from Month 1 through Month 60.	Spreading rent across requests and understating the minimum revenue floor.
Professional Liability Insurance	Fixed	Include $1,200 per month before contribution margin is applied.	Treating required coverage as optional until volume grows.
Software Subscriptions and CRM	Fixed	Model $1,800 per month as operating overhead for the relevant planning range.	Linking the full subscription bill to each authorization request.
Chief Executive Officer Payroll	Fixed	Use $175,000 annual salary as fixed payroll because FTE stays at 1.0 each year.	Classifying executive pay as per-request labor and overstating unit margin.
Authorization Specialist Staffing	Semi-fixed	Model capacity in staffing steps: 3 FTEs in the first year, rising to 25 FTEs by Year 5.	Assuming labor rises smoothly with each request and ignoring minimum coverage.
HIPAA Cloud Hosting and Data Security	Variable	Apply 8% of first-year revenue; on $1.287M, that is about $103K in Year 1.	Booking secure hosting as flat overhead and missing revenue-linked usage.
RCM Partner Referral Commissions	Variable	Apply 10% of first-year revenue; on $1.287M, that is about $129K in Year 1.	Forgetting commissions when calculating contribution margin and break-even revenue.
Annual Marketing Budget	Semi-variable	Plan spend up front, but adjust acquisition math as CAC moves from $2,400 in Year 1 to $1,800 in Year 5.	Treating marketing as purely fixed and missing CAC improvement.

How does break-even change from lean launch mode to base operations and full scale?

Scenario table

Break-even improves as the mix shifts away from Basic Tier and revenue grows faster than staffing. The lean case is the most exposed, the base case closes part of the gap, and the full case has the strongest margin mix.

Planning cases only; actual break-even will move with payer mix, staffing pace, and contract terms.

Scenario	Monthly Revenue	Variable Costs	Fixed Costs	CM Ratio	Operating Profit	Break-Even Signal
Lean launch mode	$107k	$19k	$802k	82%	-$714k	Far below the $978k monthly break-even line.
Base stable operations	$234k	$37k	$1.13M	84%	-$935k	Still below the $1.35M monthly break-even line.
Full scaled payer coverage	$797k	$80k	$2.87M	90%	-$2.16M	Highest margin, but still below the $3.19M monthly break-even line.

What breaks the break-even plan if client revenue lands late?

Stress test

The plan is tight. Slow onboarding, payer delays, or hiring before signed revenue can push it below break-even fast, and a small miss in revenue or margin can wipe out the cushion.

Stress Case	Changed Assumption	Break-Even Revenue	Revenue Gap	Risk Signal
Current plan	No change.	$978K/month	$95K cushion	There is only a thin cushion here.
Revenue shortfall	Revenue is 10% lower at $965K/month.	$978K/month	$11K gap	Slow client onboarding can erase the cushion.
Fixed-cost pressure	Fixed spend rises 10% to $883K/month.	$1,076K/month	$3K gap	Extra hiring or overhead can push break-even out.
Margin pressure	Revenue-linked costs rise from 18% to 23%.	$1,042K/month	$31K cushion	Lower margin leaves less room for payer delays.
Combined pressure	Revenue falls 10%, revenue-linked costs rise to 23%, and fixed spend rises 10%.	$1,104K/month	$139K gap	Late approvals plus early hiring can break launch cash flow.

What should a founder verify before committing to office, hiring, and platform spend in a medical prior authorization service?

Founder checklist

Break-even lands in Month 7, but Month 6 still needs a $519K cash cushion. Verify signed provider demand, workflow capacity, and launch CAC before you add lease, payroll, or build spend.

1Signed demand$1.287M Y1

Verify signed provider volume can support the first-year revenue path before you lock in any lease or staffing step.

2Lease load$14.4K/mo

Check that the non-payroll fixed load stays manageable, because that base cost has to fit the Month 7 break-even path.

3Margin check82%

At Year 1 assumptions, hosting and referral commissions take 18% of revenue, so verify each tier still leaves enough to cover fixed costs.

4Auth coverage3 FTEs

Prove the payer workflow can run with three Year 1 Authorization Specialist FTEs before you add more people, or backlog will slow break-even.

5Cash cushion$519K

Keep enough cash to survive the Month 6 trough, since the model bottoms at $519K before EBITDA turns positive.

6Launch CAC$2.4K

Verify the build stays inside the $120K scope and provider acquisition stays near the Year 1 $2,400 CAC before you raise spend.