How to Start a Medical Lab: Cost, Licenses and Profit Potential

Pay attention to these important factors as you establish your medical lab:

1. Facilities — Set up a suitable facility that meets regulatory requirements and provides a safe, clean, and efficient environment for lab operations. Consider factors such as layout, ventilation, and accessibility.
2. Licenses — Get the Clinical Laboratory Improvement Amendments (CLIA) certification from the Centers for Medicare & Medicaid Services (CMS) to legally operate a clinical laboratory in the United States.
3. Accreditation — Consider obtaining additional accreditations from organizations such as the College of American Pathologists (CAP) or the Joint Commission to enhance credibility and ensure high-quality standards.
4. Regulatory compliance — Ensure compliance with all relevant federal, state, and local regulations, including HIPAA (Health Insurance Portability and Accountability Act) to protect patient privacy and OSHA (Occupational Safety and Health Administration) standards for workplace safety.
5. Quality control — Implement rigorous quality control measures to ensure accurate and reliable test results. Establish standard operating procedures (SOPs) for all lab processes.
6. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
7. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
8. Lab equipment — Invest in high-quality lab equipment and instruments, such as centrifuges, microscopes, analyzers, and refrigerators. Ensure you have the necessary equipment for the types of tests you plan to offer.
9. Specialization — Consider specializing in specific areas such as genetics, microbiology, or oncology to differentiate your lab and attract specialized referrals.
10. Hire staff — Hire qualified and experienced staff, including medical technologists, lab technicians, pathologists, and administrative personnel. 
11. Networking — Build relationships with local healthcare providers, hospitals, clinics, and insurance companies to generate referrals and establish partnerships.

You May Also Wonder:

How profitable is a medical lab?

Medical labs are very profitable, and most bills are paid by insurance companies. More importantly, though, medical labs provide services that are vital to the health care system.

How do you market a medical lab?

To market a medical lab, use targeted advertising through channels like medical journals and online platforms, develop referral programs with healthcare professionals, establish an online presence with a professional website and social media, and network at healthcare conferences and events.

How can I differentiate my medical lab from competitors in the market?

Differentiate your medical lab from competitors by offering specialized services, such as rare tests or advanced technology, promoting accreditations and certifications, emphasizing quick turnaround times or personalized patient care, and highlighting any unique features or advantages your lab has.

What measures can I take to ensure the privacy and security of patients’ medical information and test results?

To ensure privacy and security of patients’ medical information and test results, implement strict access controls and user authentication measures, encrypt sensitive data, train staff on data protection protocols, conduct regular security audits, comply with relevant privacy regulations (such as HIPAA), use secure communication channels, and have proper data backup and disaster recovery plans in place.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a medical lab has pros and cons to consider before deciding if it’s right for you. 

Medical lab industry trends

Industry size and growth

• Industry size and past growth – The US diagnostic and medical laboratory industry is worth $68.3 billion in 2022 after expanding 3.1% annually the last five years.((https://www.ibisworld.com/industry-statistics/market-size/diagnostic-medical-laboratories-united-states/)) 
• Growth forecast – The US diagnostic and medical laboratory industry is projected to grow 3.2% in 2022.
• Number of businesses – In 2022, 29,151 diagnostic and medical laboratory businesses are operating in the US.((https://www.ibisworld.com/industry-statistics/number-of-businesses/diagnostic-medical-laboratories-united-states/)) 
• Number of people employed – In 2022, the US diagnostic and medical laboratory industry employs 347,259 people.((https://www.ibisworld.com/industry-statistics/employment/diagnostic-medical-laboratories-united-states/))

Trends and challenges

Trends in the medical lab industry include:

• Improving data tools and standardization are providing lab scientists with more advanced analytics. 
• Traditionally, labs were designed according to the testing being conducted. Today, most labs use a form of “open” design with testing in one core area.

Challenges in the medical lab industry include:

• Laboratories are facing shortages of employees trained in medical science.
• Laboratories produce significant amounts of waste from bodily fluids and must dispose of them sustainably to protect the environment. 

Demand hotspots

• Most popular states –  The most popular states for lab technicians are Alaska, New York, and Massachusetts.((https://www.zippia.com/laboratory-technician-jobs/best-states/#massachusetts)) 
• Least popular states – The least popular states for lab technicians are Oklahoma, Arkansas, and Idaho.

What kind of people work in medical labs?

• Gender – 46.7% of lab technicians are female, while 53.3% are male.((https://www.zippia.com/laboratory-technician-jobs/demographics/))
• Average level of education – The average lab technician has a bachelor’s degree.
• Average age – The average lab technician in the US is 43.8 years old.

How much does it cost to start a medical lab business?

Startup costs for a medical lab range from $40,000 to $80,000. Costs include a space rental and preparation, a considerable amount of lab equipment, and an operating budget. 

Medical laboratory technicians must be licensed. You need to have an associate’s degree from an accredited program and pass an exam through either the American Society for Clinical Pathology Board of Certification or the American Medical Technologists Agency. Each state also has its own licensing requirements. 

You’ll need to comply with regulations and requirements administered through the Centers for Medicare & Medicaid Services (CMS). You’ll also need a CLIA certificate. You can get information about this from the CMS.

You’ll need a handful of items to successfully launch your medical lab business, including: 

• Microscopes
• Hematology analyzers
• Blood gas analyzers
• Autoclaves
• Hotplates
• Chemistry analyzers
• Differential counters
• Histology and cytology equipment
• Urinalysis analyzers
• DNA analyzers
• Gamma counters
• Microplate readers/washers
• Incubators
• Point of care analyzers
• Immunoassay analyzers
• Refrigerator and freezer
• Computer system
• Waiting room furniture

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$150 - $200	$175
Business licenses and permits	$100 - $300	$200
Insurance	$100-$300	$200
Business cards and brochures	$200 - $300	$250
Website setup	$1,000 - $3,000	$2,000
Space rental	$2,000 - $3,000	$2,500
Space preparation	$5,000 - $10,000	$7,500
Lab equipment	$20,000 - $40,000	$30,000
Operating budget	$10,000 - $20,000	$15,000
Total	$38,550 - $77,100	$57,825

How much can you earn from a medical lab business?

You’ll need to develop relationships with major insurance companies to ensure your services are covered by most plans. 

Lab tests cost anywhere from $100 to $1,000 or more. These calculations will assume an average price per test of $300. Your profit margin after rent, overhead, and labor should be about 20%. 

In your first year or two, your lab might do five tests a day, five days per week, bringing in $390,000 in annual revenue. This would mean $78,000 in profit, assuming that 20% margin. As you begin to get more referrals from physicians, you could do 10 tests per day. With annual revenue of $780,000, you’d make an outstanding profit of $156,000.

What barriers to entry are there?

There are a few barriers to entry for a medical lab. Your biggest challenges will be:

• The education needed to meet licensing requirements
• The startup costs of setting up the lab and purchasing lab equipment

Step 2: Hone Your Idea

Now that you know what’s involved in starting a medical lab, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research medical labs in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a clinical laboratory with a medical laboratory scientist or a pathology lab. 

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your services and type of tests

The types of medical testing you do will be based on your skills and equipment. You should try to offer as wide a variety as possible. 

How much should you charge for medical lab services?

Prices for lab tests range from $100 to $1,000 or more depending on the type of test. Check your local market for various test prices. Your profit margin after all costs should be about 20%. 

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will generally be physicians who will refer patients to you. You can connect with them on LinkedIn or find them on Google or Yelp and call them directly. 

Where? Choose your medical lab location

Choosing the right location for your medical lab is essential for attracting clients and ensuring its success. Look for a spot in a central and convenient area, such as a busy commercial district or a medical center. Consider accessibility and convenience, ensuring that the location is easily reachable by foot or public transportation, and has ample parking.

Depending on the type of medical lab services you plan to offer, you may also want to consider the proximity to hospitals, clinics, or other healthcare facilities. When selecting a location, ensure that it meets all necessary safety and regulatory requirements for medical labs.

By strategically choosing the right location, you can establish a reputable and successful medical lab that provides quality services and stands out in the competitive healthcare industry. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

Step 3: Brainstorm a Medical Laboratory Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “medical lab” or “medical testing”, boosts SEO
• Name should allow for expansion, for ex: “MedLab Innovations” over “Cardiology Lab Services”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Medical Lab Business Plan

Here are the key components of a business plan:

• Executive Summary: A brief overview of the entire business plan, summarizing key points and objectives.
• Business Overview: A concise description of the medical lab business, its mission, and its goals.
• Product and Services: Explanation of the medical tests and services offered by the lab.
• Market Analysis: An assessment of the market for medical testing services, including target demographics and trends.
• Competitive Analysis: Examination of competitors in the medical lab industry.
• Sales and Marketing: Strategies for attracting customers and promoting the lab’s services.
• Management Team: An introduction to the individuals responsible for running the business.
• Operations Plan: Details on how the medical lab will function, including location, equipment, and staffing.
• Financial Plan: Projections for the lab’s finances, including income statements, balance sheets, and cash flow forecasts.
• Appendix: Additional information such as supporting documents, resumes, or any supplementary materials.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to medical labs. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your medical lab will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a medical lab business. 

Step 8: Apply for Medical Lab Business Licenses Permits

Starting a medical lab business requires obtaining a number of licenses and permits from local, state, and federal governments.

Medical laboratory technicians must be licensed. You need to have an associate’s degree from an accredited program and pass an exam through either the American Society for Clinical Pathology Board of Certification or the American Medical Technologists Agency. Each state also has its own licensing requirements. 

You must comply with regulations and requirements administered through the Centers for Medicare & Medicaid Services (CMS). You’ll also need a CLIA certificate. You can get information about this from the CMS.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your medical lab business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as qualer, HealthAxis, or CGM, to manage your workflows, records, compliance, specimen inventory, and billing.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are some powerful marketing strategies for your future business:

• Professional Branding — Develop branding that exudes trust, precision, and expertise, featuring a professional logo, business cards, and a well-designed website.
• Website Optimization — Launch a website detailing your lab services, certifications, and specialties, optimized for SEO to attract local searches related to medical testing and diagnostics.
• Local SEO — Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Social Media Engagement — Utilize LinkedIn for professional networking and sharing industry news and advancements, and Facebook to engage with the broader community and share health-related information.
• Content Marketing — Publish a healthcare blog with posts about medical testing advancements and laboratory practices, and distribute email newsletters updating healthcare providers on new tests and medical research.
• Video Content — Produce videos that offer tours of your facility, explain testing processes, and emphasize the importance of accurate diagnostics.
• Experiential Marketing — Host open house events to showcase your lab facilities to healthcare providers and participate in medical conferences to network and stay informed about industry trends.
• Healthcare Partnerships — Build relationships with local healthcare facilities to become their regular testing provider and collaborate with educational institutions for research and training opportunities.
• Customer Loyalty Programs — Implement a referral program that rewards healthcare professionals for new referrals and offer service agreements to ensure a steady business flow from regular clients.
• Targeted B2B Advertising — Advertise in medical journals and on online healthcare platforms to reach a professional audience effectively.
• Community Engagement — Engage in community health initiatives and sponsor local health events to enhance brand visibility and demonstrate your commitment to community health.
• Direct Outreach — Network with local healthcare providers, clinics, and research institutions to introduce your services and establish collaborative partnerships.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your medical lab meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your medical lab business could be: 

• Accurate lab test results in 24 hours
• Reliable medical testing with quick results
• A sustainable medical lab for all your testing needs

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a medical lab business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in medical labs for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in medical labs. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Run a Medical Lab – Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a medical lab business include:

• Medical Laboratory Technicians – perform testing
• Medical Laboratory Scientists – perform more advanced testing
• General Manager – scheduling, accounting
• Marketing Lead – SEO strategies, social media, call on physician’s offices

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Start Making Money!

Medical labs are a necessity in any community and provide valuable information to physicians and patients. Medical tests are also relatively expensive, which is why the industry is a major opportunity. If you have a desire to boost health care, you could start your own medical lab, have an impact on people’s lives, and make a good living at the same time.

You’ve added business education to your resume now, so it’s time to break out the microscope and get your successful medical lab going!