Launching a locum tenens company is an exciting venture that blends healthcare knowledge and recruitment skills with solid business acumen. It's a multi-billion dollar industry with steady demand for temporary physicians and specialists across hospitals, private practices, and rural health facilities.
This guide will walk you through the practical steps of validating your business idea, securing funding, building your network, and navigating licensing requirements to help you launch a successful locum tenens company in the U.S.
Step 1: Plan your business and validate your idea
Market research and finding your niche
First, define your target market. Instead of serving all specialties, you might want to focus on one or two high-demand areas like hospitalist medicine or psychiatry. Review data from the National Association of Locum Tenens Organizations (NALTO) to spot trends and regional needs.
A frequent misstep is to go too broad too soon. Specialization helps you build a strong reputation and a targeted candidate pool faster. This focus makes your marketing and recruitment efforts more effective from day one.
Competitor analysis and startup costs
Identify your direct competitors by searching on LinkedIn and healthcare job boards like Doximity. Analyze their client lists, the specialties they cover, and their marketing messages. This gives you a clear picture of the landscape you are about to enter.
Speaking of costs, your initial investment will likely range from $50,000 to $100,000. This covers legal formation (~$500), professional liability insurance (~$30,000+), an Applicant Tracking System like Crelate (~$200/month), and initial marketing (~$5,000).
A significant portion of this is working capital. You need enough cash to pay your physicians for 60-90 days before client payments arrive. Underestimating this requirement is a common reason new agencies face challenges.
Here are 3 immediate steps to take:
- Research demand for two physician specialties in your target state using NALTO data.
- Create a spreadsheet listing five local or national competitors and their specialties.
- Calculate your required working capital to cover one physician’s salary for 90 days.
Step 2: Set up your legal structure and licensing
Choosing your business structure
Most locum tenens agencies start as a Limited Liability Company (LLC). This structure protects your personal assets from business debts. Filing costs range from $100 to $500 with your Secretary of State, and approval usually takes 2-4 weeks.
Once your business is profitable, you might consider electing for S-Corp tax status. This can reduce your self-employment tax burden, but it adds payroll complexity. It is a good idea to consult a CPA who understands healthcare staffing before making this switch.
Federal, state, and local requirements
Your first federal step is to get a free Employer Identification Number (EIN) from the IRS website. You will need this for taxes and payroll. At the state level, you will likely need a specific Healthcare Staffing Agency License from your Department of Health.
These state licenses can be a hurdle. Expect application fees from $500 to $2,000 and processing times of 60-90 days. One area where new agencies stumble is underestimating this timeline. Also, check with your city or county for a general business operating permit.
Here are 3 immediate steps to take:
- Choose between an LLC or S-Corp and file the formation documents with your Secretary of State.
- Apply for a free Employer Identification Number (EIN) directly from the IRS website.
- Identify the specific name and cost of the healthcare staffing license in your state.
Step 3: Secure your insurance and manage risk
Essential insurance coverage
Your most significant policy is professional liability, also known as malpractice insurance. Plan for $30,000 to $50,000 annually for a standard $1 million per occurrence/$3 million aggregate policy. This protects your business from claims related to patient care.
You will also need workers’ compensation, which covers your physicians if they are injured on assignment. In addition, general liability protects against non-medical claims like property damage. If you have a physical office, you will need property insurance.
A frequent oversight involves tail coverage. This add-on protects you from claims filed after a physician’s contract ends for an incident that happened during their assignment. Ensure any policy you consider includes it to avoid future financial vulnerabilities.
Finding the right provider
You should partner with an insurance broker who specializes in healthcare staffing. General agents often miss key nuances. Consider getting quotes from industry-specific providers like MedPro Group, The Doctors Company, and Coverys to compare rates and coverage details.
Here are 3 immediate steps to take:
- Request quotes for a $1M/$3M professional liability policy from two specialized providers.
- Ask each provider to explicitly detail their tail coverage options and costs.
- Get a workers' compensation premium estimate based on your projected first-year physician payroll.
Step 4: Establish your operational setup
Physical vs. remote office
You can run a locum tenens agency from home, especially at the start. This saves significant overhead. If you need a professional space for meetings, consider a co-working membership for around $200-$400 per month instead of a traditional office.
Many new owners make the mistake of signing a 3-5 year commercial lease too early. This locks up capital. A flexible, month-to-month option allows you to scale your physical footprint only when revenue supports it. No specific zoning is typically required beyond general commercial use.
Your technology stack
Your Applicant Tracking System (ATS) is your command center. Systems like Bullhorn or Crelate manage candidates and client relationships for about $150-$300 per user monthly. Also, set up a professional VoIP phone system like RingCentral for about $30 per user.
A credible website is non-negotiable. Budget $2,000 to $5,000 for a professional WordPress site that showcases your specialties. This is your primary tool to attract both physicians and healthcare facilities. Secure email through Google Workspace is another small but vital expense.
Here are 3 immediate steps to take:
- Request demos from two Applicant Tracking Systems like Crelate or Bullhorn.
- Explore local co-working space memberships as an alternative to a long-term office lease.
- Get a quote from a web developer for a professional WordPress site.
Step 5: Set up your payment and billing systems
Billing your clients and managing cash flow
Most healthcare facilities operate on Net 30 or Net 60 payment terms. This means you will invoice them and wait 30 to 60 days for payment via ACH transfer or check. This delay is a frequent challenge for new agencies, so your working capital must cover physician payroll during this gap.
Your client service agreement should clearly state these terms. Some agencies get into trouble by not having a firm contract, which leads to payment delays. Always have a signed agreement before a physician starts an assignment.
Accepting on-the-go payments
For situations that require immediate payment, like securing a retainer from a new clinic, you need a flexible option. For locum tenens companies that need to accept payments on-site or on-the-go, JIM offers a streamlined solution.
With JIM, you can accept debit, credit, and digital wallets directly through your smartphone. There is no extra hardware needed. At just 1.99% per transaction with no hidden costs, it is a cost-effective choice, as other providers often charge 2.5% or more.
- Get Started: Download the JIM app for iOS.
- Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
- Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers.
Here are 3 immediate steps to take:
- Draft a client service agreement that specifies Net 30 payment terms.
- Research accounting software that can automate invoicing for your clients.
- Download the JIM app to see how it works for collecting deposits or retainers.
Step 6: Secure your funding and manage finances
Funding your agency
Most locum agencies use a mix of funding. An SBA 7(a) loan is a solid option for working capital, with amounts up to $150,000. You will need a good credit score (680+) and a detailed business plan to qualify. Interest rates typically sit between 8% and 12%.
You should also establish a business line of credit immediately. This gives you flexible access to cash to cover payroll while you wait for client payments. A bank might offer a line of credit from $25,000 to $75,000 to start. Some owners also use personal savings for the initial push.
Managing your working capital
Your biggest financial challenge is cash flow. You need enough capital to cover a physician’s salary and expenses for at least 90 days before your first client payment arrives. For one physician, plan for at least $80,000 to $100,000 in working capital for the first six months.
A frequent miscalculation involves underestimating this buffer. Relying only on incoming invoices to make payroll is a recipe for stress. A healthy cash reserve or line of credit prevents this problem and lets you focus on growth instead of chasing payments.
Here are 3 immediate steps to take:
- Contact your bank to discuss qualifications for an SBA 7(a) loan.
- Apply for a business line of credit to manage cash flow gaps.
- Create a six-month cash flow projection based on one physician’s salary.
Step 7: Build your team and streamline operations
Hiring your first team members
Your first hire will likely be a Physician Recruiter. This person finds, screens, and manages relationships with physicians. Look for someone with 2-3 years of healthcare recruitment experience. A base salary of $50,000 to $70,000 plus commission is standard.
While no specific certifications are required, experience with physician credentialing gives a candidate a strong advantage. This role drives your growth, so prioritize excellent communication skills and a solid track record.
Setting performance benchmarks
A healthy employee-to-revenue ratio is one internal staff member for every $500,000 to $1 million in annual revenue. A frequent misstep is to hire support staff too quickly, which can drain your working capital before revenue catches up.
Let your revenue goals guide your hiring plan. Once your first recruiter is established, you might add a Client Manager to focus on hospital relationships. This frees up your recruiter to concentrate on building the physician pool.
Managing daily operations
Your Applicant Tracking System (ATS) is the hub for your daily workflow. Use it to log every physician interaction and manage all credentialing documents. This organization is what allows you to scale without chaos.
Here are 3 immediate steps to take:
- Draft a job description for a Physician Recruiter with a $50k-$70k base salary.
- Set a revenue goal of $500,000 to trigger the search for your next hire.
- Explore the credentialing management modules within your chosen ATS.
Step 8: Market your agency and acquire clients
Digital marketing and outreach
Focus your initial efforts on LinkedIn and Doximity. Use LinkedIn to connect with hospital administrators and practice managers. On Doximity, you can engage directly with physicians in your target specialties. Share content that highlights your expertise in a specific niche.
Direct outreach is also effective. A personalized cold email campaign to department heads can work, but expect a low response rate of around 1-2%. Follow up with a phone call to build a personal connection. This direct approach often cuts through the noise.
Many new agencies make the mistake of only posting on large job boards. This puts you in direct competition with dozens of established firms. Instead, target smaller regional hospitals that may get less attention from your larger competitors.
Measuring success and building relationships
Track your Customer Acquisition Cost (CAC). It is not unusual for a new client facility to cost $2,000 to $5,000 to acquire. The key is to secure long-term, multi-placement contracts that increase the lifetime value of that client relationship.
Also, plan to attend regional healthcare conferences. A successful, low-cost campaign could be sponsoring a breakfast at a state medical association meeting. This gives you direct access to decision-makers in a way digital marketing cannot.
Here are 3 immediate steps to take:
- Create a list of 20 department heads at target hospitals to contact on LinkedIn.
- Draft a personalized email template for direct outreach to healthcare facilities.
- Research one regional healthcare conference to attend in the next six months.
Step 9: Develop your pricing strategy
Pricing models and markups
The standard locum tenens model is a daily rate plus a markup. You pay the physician a set rate and bill the client that rate plus a 25% to 40% margin. For a physician earning $1,600 per day, your bill rate to the facility would be $2,000 to $2,240.
Another option is an all-inclusive rate. This bundles the physician’s pay, travel, and your fee into one daily number. While it simplifies client billing, a miscalculation on travel or lodging costs can quickly erase your profit. You have to manage your expenses with precision.
Setting your rates
To set competitive rates, you need market intelligence. You can ask physicians what day rates they currently receive from other agencies. This direct feedback is often the most accurate data you can get. It helps you position your offers attractively without leaving money on the table.
You might also want to create a simple rate sheet for your top two specialties. This document allows you to respond to client inquiries quickly and professionally. It shows you have a clear pricing structure and are ready for business.
Here are 3 immediate steps to take:
- Calculate a sample bill rate using a 30% markup on a $1,500 physician day rate.
- Ask two physicians in your network about the current market rates for their specialty.
- Draft a basic rate sheet for one of your target specialties to share with potential clients.
Step 10: Maintain quality and scale your agency
Measuring your performance
To set your agency apart, you can pursue The Joint Commission's Health Care Staffing Services (HCSS) certification. This shows clients you meet rigorous national standards for quality and safety, which is a powerful differentiator.
Track your physician retention rate, aiming for 80% or higher. Also, use a Net Promoter Score (NPS) survey to measure client satisfaction after each placement. These numbers tell you more than just revenue.
Some agencies get fixated on their fill rate. While important, chasing this metric alone can lead you to place mismatched physicians. This damages client trust. Focus on quality placements that lead to repeat business.
Knowing when to grow
Once you hit the $500,000 to $1 million revenue mark with your first recruiter, it is time to consider your next hire. This benchmark ensures you have the cash flow to support expansion without strain.
When you decide to enter a new specialty or state, make sure your credentialing process can handle the load. As you scale, manual credentialing becomes a bottleneck. You might want to look at software like Medallion to automate this.
Here are 3 immediate steps to take:
- Review the HCSS certification standards on The Joint Commission website.
- Create a simple client satisfaction survey to track your Net Promoter Score.
- Set a revenue target of $750,000 to trigger the hiring plan for your next team member.
You have the roadmap to launch your locum tenens agency. Remember, this business thrives on trust and specialization. Focus on building strong relationships within your chosen niche, and you will set a solid foundation for growth. Your detailed plan is ready, now go execute it.
And when it comes to getting paid, especially for initial retainers, keep it simple. JIM lets you accept card payments right on your smartphone with no extra hardware, all for a flat 1.99% fee. Download JIM and have one less thing to worry about.
