Buying leads (if you are a plumbing, HVAC, pest, or remodeling contractor) can be a good choice or a disaster. Learn how to avoid regrets.
Have you ever had a stretch in your home improvement or home services business where your phone was getting too quiet… and you needed a fresh infusion of leads?
Is that a stupid question or what?
Of course! Everyone runs into the problem of needing leads at some time.
When that happens, what do you do?
The question we want to explore in this article is this: Should you consider buying some leads to keep you going?
“Pat, I run a plumbing, heating and air conditioning business in New Mexico. I used to buy leads from Service Magic. I think they changed their name to Home Advisor. Anyway, my experience was mixed. But, lately I have really needed some new leads and I have been thinking about buying a few leads again. Do you think it’s a good idea to buy leads?” –Mark W.
Is It A Good Idea For A Home Service Contractor To Buy Leads?
I think everyone has either bought leads, thought about buying leads or investigated this option. This is especially true when your business is fairly new.
I also know of some home improvement contractors who buy leads to supplement their other lead sources.
There are a ton of companies that sell leads. Just go to Google and
type in “buy [your type of business] leads” or “buy construction leads.” There are pages of options.
Some of the more prominent ones include 1800Contractor, Home Advisor (formerly known as Service Magic), Sales Genie, and many more.
The answer is not a simple yes or no. There are some positive and negative factors to consider when evaluating this option.
The Pros And Cons Of Buying Leads For Your Contracting Business
There are some good reasons to buying leads on occasion. Note: It is not advisable to rely on just one source of leads. You want at least 3 regular sources, in case one starts to dry up or deliver poor quality leads.
Here are some positive reasons to consider this option for your home services or improvement business:
Positive reasons for buying leads
1. Quick access to leads: If you need a quick infusion of new leads and prospects, this option is always available. Need leads this week? Just place a call. Some other lead source options just take too long when you are in dire need of your phone to ring.
2. Able to determine profitability: Since you know how much you are spending on a lead, you can determine how much it costs you to secure an actual customer.
You can then compare that number to how much profit you make from the project to come up with your Return On (your marketing) Investment (ROI).
This is a crucial number because many times I have seen contractors chase after new projects, assuming they are making money… but they aren’t. Buying leads allows you to determine how much of a profit or loss you are making on those leads, which is important. Ok, hold on to this ROI conversation for just a moment. We will get back to it.
There are also some significant negatives that must be factored in before proceeding.
Negative Reason 1: The Mixed Quality Of The Leads Wastes Your Time & Money
The quality of the leads you are able to buy is often erratic at best. Out of the batch you buy, there are lots of duds.
How can you reduce the duds?
If the company has obtained the lead from those actively looking for your specific product or service, those can often be pretty good.
The problem with how some companies acquire leads they sell
But, if they are fishing for leads to resell, those can be
problematic. That is a nice way of saying they stink.
What is “fishing for leads?” The people who are provided as leads fill out a form that might as well have said, “yes, at some point in my life I might possibly, maybe, could be interested in talking to a professional contractor about something needing to be done around my house.”
At one point early in my career, I bought leads that turned out to be obtained through fishing. When I talked to these “leads,” they were not really interested at that time (probably never) in my services… or anyone else’s for that matter. They asked a few questions but were just tire kickers, as they say.
The real cost = time and profits
This has a dramatic impact on your time (chasing after non-buyers). Most contractors I know are much too busy to pursue non-leads like these.
In addition, the quality of the leads you buy impacts your ROI. For example, if one source for buying leads has 1 out of 4 leads turning into a new job (which is pretty good), and the leads cost $25, then it costs you $100 to get a project. If your make $200 in profit on the project, then you have a 100% ROI (you net $100 in profits, after paying $100 for the leads to get the one project).
If, however, the quality of the lead is pitiful, it may take you 10 leads to get one job. 10 leads, each costing you $25, now makes your cost to acquire a new customer $250. If you only make $200 in profits, you are losing money!
Negative Reason 2: Possible Competition For
The Same Lead: Another common problem with buying leads is having to compete with other companies for the same prospect’s business. This can happen when the lead generation company sells the lead to you… and up to 4 other contractors.
There are lots of problems with this arrangement:
One problem with competing for the same lead – You have to be ready to jump on the phone to call the lead the instant the lead information arrives in your inbox. This is easier said than done. Unless you have someone back in the office ready to do this, you shouldn’t even try competing.
If you are the third caller (even the second at times), you either find out the lead has already decided to go with the earlier caller, or they get mad at you for calling (“why am I getting all these phone calls!”). Kind of hard to sell your services when the person doesn’t want to talk to you.
Another problem with competing for the same lead – Direct competition turns the arrangement into a race to the bottom. The homeowner treats all the contractors as a commodity, meaning they are viewed as “all the same” (even though they aren’t). To them, the only decision they must make is choosing the one that will give them the best deal. Before you know it, to get the job you must bid so low that you don’t make any money for your time and expertise.
You can buy exclusive leads but they are more expensive. Should you go this route? It really depends on the quality of the leads. If they are decent quality and your closing rate and ROI are good, then you would want as many leads as you can handle… without having to cut your prices dangerously low just to get the job.
My Recommendation For Contractors Buying Leads
If you can find a source of good quality, exclusive leads with solid ROI, this might be a good option. However, you have to determine if ROI is strong enough to justify the expense.
Your Turn
If you buy leads regularly, I would love to hear your experience. I personally don’t know any contractors who buy leads as their main source of leads. If that is you, please let us know so we can set the record straight.
Buying contractor leads can be incredibly frustrating and unprofitable– unless you avoid 2 key issues.
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