When it comes to determining lead costs, especially by type of lead, most home improvement company owners don't have accurate data. Why not? They don't have a process for giving them that information. And without a process to tell you how much each lead costs, it's difficult to develop a productive and affordable marketing mix and the budget that goes with it.
Typically, what many do in evaluating marketing costs is move staff, insurance, rent, phones, and other overhead into general administration. In other words, they're not looking at fully loaded costs, per lead source, but only at part of those costs. That could mean the difference between say, a 13% marketing figure (direct costs) versus a 16% or even an 18% cost of marketing, when all costs, down to the paper clip, are considered.
What Does It Cost? Let's take show leads. Say I rented booth space at a show, and my booth rental was $7,000. If I did $234,000 net business from the show, is my marketing cost 3%? What happens when the additional, say, $8,000 I spent for materials and miscellaneous supplies to customize the booth are factored in? That brings it to $15,000 and a 6.4% marketing cost. What about the cost of having two people in the booth for 10 days? And then the cost of follow-up calls to contacts? The demonstrators and the calling room marketers bring that show lead marketing cost to 9%. Additional overhead could bring it to 10%.
Every lead source has its own variables. To manage marketing costs, measure those variables and adjust. Take store leads or SFI (sell-furnish-install). Start out by assuming that you're paying a fee to the retailer of somewhere between 8% and 12% per job sold. In-store demonstrators will be the additional significant cost. What that means is that SFI marketing costs will be 16% of net sales, minimum. To reduce that expense you have to either reduce wages or increase productivity, i.e., the number of leads coming out of that store.
Balance and Blend Consider previous customers — always an excellent source of business. Our fully loaded cost for that previous customer lead is 4%. It's essentially the cost of managing the phone room. That's a highly efficient lead cost. The problem? It's not scalable. I can't turn the $2 million in installed work with previous customers that we do this year into a $4 million lead source next year. There's a ceiling. I can increase it 10% — 15% at the most.
On the other hand, there is no ceiling on canvassing leads. The only question is how many more crews do you want to manage. Previous customers, referrals, and self-generated leads, of course, are a great way to drive down marketing costs. So when developing an overall marketing plan for your company, it's a matter of blending those highly efficient but non-scalable lead sources with more expensive, but expandable, sources, such as canvassing, to produce a weighted average that you can budget for. Knowing your fully-loaded marketing cost per lead source puts you in a position to best determine which sources enhance your marketing mix and which to drop.
Planning your marketing budget? Adjusting your plan for this year? Now you can start making decisions. You, the owner or marketing manager, have to realistically project what you're going to get from each lead source and where you may want to adjust it. Do you still want to stick with a particular high-cost lead source? Can you get some more volume out of your low-cost lead sources? In what ways can you reduce some of the costs of those high-cost lead sources? You're not going to get more business by wishing. —Brian Leader is president of ImproveIt, a home improvement company in Columbus, Ohio, which also markets a lead management software called ImproveIt 360.