The marketing mix that generates leads for St. Clair Corp. once consumed 22% to 25% of the company's annual revenue. But the seven-branch contractor, headquartered in St. Louis, pared those expenditures down to 15% by instituting a lead-tracking system that gives the company clearer insight into the productivity of its various marketing platforms, including television, radio, newspapers, and billboards.
“We cut back on media that didn't work, like radio stations that weren't producing leads or TV ads in the wrong time slots,” says Kim Ackerman, St. Clair's marketing director, who installed the lead-tracking program in late 2004. She notes, though, that developing a marketing mix “is not a science,” and hinges on prospective leads providing accurate information about which ad motivated them to call. To that end, St. Clair's call center — which handles all leads that come into the company — has refined its questions to determine, for example, what time of day a customer saw a TV ad “so we know which station it aired on,” she says.
Lead tracking helps replacement contractors identify which medium works best for their markets. But there's no real consensus about why some lead sources click or don't, except that the flagging readership of newspapers dilutes their effectiveness, and that home shows and other events like festivals and county fairs are reliable lead producers because of the traffic they draw for relatively low cost.
And everything old is new again, as contractors reactivate — with some trepidation — their canvassing troops to recapture some of the business made inaccessible by Do Not Call telemarketing restrictions (see “Canvassing: Love It, Hate It”).
Lead Costs Many factors influence marketing costs, including the price tag and the gross margin of the product being sold, the population density of the market being served, and the skill level of the salesperson handling the lead. Chris Edwards, president of Total Remodeling in Union, N.J., says that his company prefers not to even establish a company-wide benchmark for lead costs because they vary so much by product.
What contractors spend on leads also correlates with how much business they get from repeat customers or referrals. For instance, referrals produce more than one-fifth of First Coast Rainguard's $4 million in annual revenue and Keith Barratt, president of the Jacksonville, Fla., company, acknowledges that his marketing budget — less than 10% —would be “much higher” without referrals and an 8,500-square-foot showroom that lures walk-in trade. By contrast, Melani Bros., in Yorktown, Va., spends between 15% and 18% because, explains marketing manager Rick Menendez, “we're in a ‘make market' situation, where our target is the person who's not yet in shopping mode.”
Rick Grosso, a marketing consultant based in Lake George, N.Y., points out that contractors need their marketing to be precise because the target they're shooting at is relatively small. Grosso cites statistics from the Joint Center of Housing Studies at Harvard University to the effect that three-quarters of home improvement jobs are bought by around one-fifth of homeowners. He advises clients to track the efficiency of their marketing on four levels: per-inquiry costs, conversion rate (of inquiries to issued leads), lead costs as percentage of sales, and net volume per inquiry. Once a company has these measurements, it can dig deeper to uncover why one lead source performs better than the next. A home improvement company might find, for example, that its salespeople need specific training to handle leads from sources such as TV or events.
That analysis, though, is easier said than done, even among sophisticated marketers. “Our biggest challenge is finding the right balance between spending [for leads] and sales [generated],” says Don Bruce, whose company, American Home Design, in Nashville, Tenn., gets $3 million of its $11.5 million in revenue from referrals, but still spends $1.1 million on the 65 lead sources it regularly tracks. Bruce's benchmark for lead costs is 10% of sales. Within that spectrum, American Home Design earmarks 27% of its ad budget for network TV, which in the first six months of 2005 produced $1 million in sales. During this period, the company also sold $800,000 in projects to customers it contacted through events like fairs and festivals.
Tracking It Bruce knows how much business each lead source creates at any given moment because his company uses tracking software called ImproveIt 360, developed six years ago by Ennovations, a Columbus, Ohio-based provider that grew out of in-house software developed by Columbus home improvement company Ohio Energy Corp. According to Brian Leader, Ohio Energy's president, many of the largest home improvement companies now use Ennovations' tracking programs.
The best advertisement for ImproveIt 360 has been Ohio Energy itself, which, after applying the software to its business over a five-year period, now processes three times as many contracts (the company has since added gutter protection) even though it only added two administrative/operations personnel to its staff.
Another of the program's features is ReplayIt, which tracks lead status from inquiry to appointment to demo and thereafter, bringing greater accountability to marketing and sales by, for instance, making it impossible for reps to blow off their leads. Using ReplayIt, Ohio Energy boosted its demo rate to 84%, which compares with 60% at a typical home improvement company.
Rex Patterson, owner of Patterson Home Improvement in Jacksonville, Fla., gets 80% of his company's $9.5 million in sales from installing TEMO sunrooms. He uses Improve It 360 to track leads “through the entire process,” from call-in to job completion. Patterson says that his barometer for success is net sales per lead issued, which for his company is $1,800 in net (i.e., installed) business for every $250 (current cost) lead issued.
ImproveIt 360 can track leads by ZIP code. That allows Patterson to check municipal records for the assessed value of a prospect's property to help him decide if it's worth sending a rep to call. He and other contractors are well aware that all lead sources aren't equal, and that lead costing isn't as cut and dried as any one calculation. Several spoke of customers who claimed they had heard about their companies through media they don't even use.
Last year, Archadeck's sales office in Richmond, Va., had 145 customers out of more than 600 who insisted that they saw the company's ad in the Yellow Pages. “There's no way on earth that's true,” marketing manager Vicki Kiger says. She points out that customers often hear about the company somewhere else — such as TV or one of the 20 magazines Archadeck uses — then go to the Yellow Pages or the Internet for contact information. All the more reason, smart marketers point out, to use many lead sources and develop a method to pinpoint the original source of the lead.