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How Much is a Home Services Lead Worth?

How Much is a Home Services Lead Worth?

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Posted by Ryan Redding

March 2, 2020

Owning a home services business can be exceedingly rewarding, but it also comes with its share of frustrations. I’ve spent enough time with shops like yours to know that marketing is usually near the top of the “stuff I wish I didn’t have to deal with” list. 

Still, as you know, home services marketing is a necessary evil: 

  • Marketing creates leads and

  • Leads create customers and

  • Customers create revenue. 

Of course, that logical progression comes with its fair share of “ifs”:

  • Your marketing will create leads if you’re targeting the right customers and spending enough to make a difference. 

  • Your leads will become customers if your website’s built to convert and if your customer service reps are well-trained. 

  • Customers create revenue if you’re using a value-based pricing strategy and if your services are both retention- and referral-worthy.

Assuming you have all those “ifs” under control, what you find yourself arguing over (or at least grumbling about) is what it costs to set it all in motion

I’m a home service marketing expert, and I want you to hear this from me: It’s perfectly reasonable to raise an eyebrow at pricey marketing suggestions. After all, if you’re spending more money on marketing than you’re bringing in with jobs, that’s problematic. 

The trick is to have a marketing budget that’s right-sized, which is easier said than done. It’s do-able, though, and it all starts with a focus on your leads.

Cost of Home Services Leads vs. Worth of Home Services Leads

Determining the cost of your home services leads is easy: Divide your total marketing spend for a particular time period by the total number of leads you got over that same time period. So, if you spent $25,000 on marketing last year and you got 250 leads, your cost per lead is $100.  

We’re asking a different question, though: How much are your leads worth? Sure, your cost per lead might be $100, but the worth, the value, of that lead should be many times that amount. Unfortunately, it’s often difficult to look past the immediate sticker shock of a PPC ad campaign to see the value your investment brings. So let’s take a look at that.

Determining How Much Home Services Leads are Worth

If you want to grow a sustainable home services business, you’ll have to not only track data but also respond to that data. There are a ton of numbers to deal with and math to do, and while I realize that’s no fun, it’s also no fun to waste money. 

So, let’s figure the worth of your leads for the past six months:

  1. List your paid lead sources. Make a list of all the places you spent money to get new business: Google Ads, Facebook ads, Angie’s List, and so on.

  2. Count leads. Determine how many leads you got from all of those sources combined in that same time period.

  3. Count new customers. Figure out how many customers you got from all of those leads.

Let me pause right here. Some of you may be asking, “How do I know where people came from?” If you don’t have a way to collect that data, you’ll need to start there. Every time your phone rings, and every time you (or your technicians) leave someone’s home, you should ask, “How’d you hear about us?” There’s simply no other way to know which marketing strategy is working for you.

Let’s go back to the math:

  1. Divide leads by customers. Divide your total leads by your total new customers. For example, let’s say you got 100 leads and 20 of them became customers. So, your lead-to-sale conversion rate is 20%.

  2. Determine average revenue per new customer. Using our example, let’s say those 20 jobs averaged $1500 in revenue. 

  3. Figure the worth of each lead. Multiply the dollar amount you got from step 5 by the percentage you got from step 4. In our example, each lead is worth $300 ($1500 *.20).

Why It’s Important to Know the Worth of Your Leads

Why does it matter how much each of your leads is worth? Is it really necessary to keep track of all that data and do all that math? Absolutely. By giving sufficient attention to what your leads are worth, you’ll have a much better idea of where to cap certain elements of your marketing strategy. 

For example, Google Local Services is pay-per-lead. As long as you’re spending less per lead than those leads are worth, that’s a good option for you. But, using our example, if your per-lead cost is $500, you should definitely re-think that approach.

Remember, “How much should my leads cost?” is the wrong question. At best, it’s an incomplete question. The most important metric here is how much your leads are worth. 

Here’s another way to think about this: Worth is the same thing as profit potential. Let’s say you spend $1000 on stock that’s going to make you $1000. There’s zero profit potential there—zero worth—so the hassle is unnecessary. If you spend $1000 on stock that’s going to make you $800, that’s definitely not worth it. 

Yet so many home services businesses are doing just that: they’re spending ridiculous amounts of money for leads that simply aren’t worth it. Let me be specific. HVAC folks: Don’t pay for leads to replace thermostats. Plumbers: Don’t pay for leads to pull toy cars out of toilets.

That said, don’t get too mired in the details. If you’re looking at the value of your Google Ads leads compared to the value of your Angie’s List leads compared to the value of your social media leads, for example, you’re likely going to make less profitable decisions. 

Here’s why: Worth has a relative value that’s dependent on how much a particular sale brings in. If you’re focusing only on the leads with the absolute highest potential value, you may slash your marketing budget too dramatically and lose more middle-of-the-road opportunities. Over time, that simply won’t be sustainable. 

You probably don’t get nearly as many high-dollar install jobs as you do run-of-the-mill repair jobs, right? So figure out what your tried-and-true, bread-and-butter jobs are, and finagle your lead acquisition strategy to fetch you more of those.

Ryan Redding

As owner of DP Marketing.Services, I work with home services contractors, using a proven marketing process, to get you the leads, jobs, and revenue you deserve. You can also find loads of practical advice in my book, The Book on Digital Marketing for Plumbing & HVAC Contractors and on my free YouTube channel.

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