When David Braymiller, president of Braymiller Builders of W.N.Y., started his company in the Buffalo area 20 years ago, the former NewPro salesman had $80 in his pocket and not one cent of credit. “The only way I could generate leads was for my wife and I to get on the phone and start telemarketing.”
That's what they did. The company, which generated $5.5 million in mostly window replacement work last year, grew steadily until a few years ago when the Federal Trade Commission's National Do Not Call (DNC) Registry came into effect. Since then Braymiller Builders has shifted its promotional dollars into direct mail and event marketing. Lead costs have increased — today they are 14% of company sales — but Braymiller Builders has been able to avoid taking a hit on volume.
Lead Machines Full-service remodeling firms typically budget a figure equivalent to about 2% of their sales for marketing. Replacement companies can spend as much as 20%. All of the firms on the Replacement 100 list — our annual listing of the country's largest specialty contractors, ranked by volume of replacement products sold — would describe themselves as home improvement contractors. But many, or most, are actually marketing and selling machines.
“It's always about getting leads,” says Tom Hayes, sales manager for Dalco Home Remodeling, a specialty contractor with a kitchen/bath division, located in the St. Louis area. “If leads are down in July, sales will be down in July.”
Leads today cost more. No surprise there. The average cost of an issued lead for Replacement 100 companies in 2003 was $191.50, which was a 7.6% increase from 2002. This year, some 55% of the Replacement 100 report increased lead costs, with just 9% of respondents saying lead costs fell. Average lead cost? $219.77.
To hold marketing costs in line involves constantly measuring lead productivity, finding new lead sources, and developing systems to generate additional work from past customers. Among all lead sources, repeat/referral is described as the top lead generator for 27% of Replacement 100 contractors. Yet many companies get little or no repeat or referral work. Not surprisingly, they tend to be the companies that spend the most on marketing.
Two years ago, Vinyl Designs in North Highlands, Calif., generated most of its leads from telemarketing. When the effects of DNC regulations began to be felt, company president Stephen Kuhlke decided to get more repeat/referral and self-generated leads. He created systems whereby salespeople, administrative personnel, and installers repeatedly query customers for referrals. Vinyl Designs also began paying an additional 8% commission on self-generated leads. The $6 million company, which installs windows, siding, and patio covers, went from almost no referral leads in 2002 to 10% last year, with self-generated leads supplying another 12% of business. Vinyl Designs' overall marketing costs are 12% of sales.
Scramble for Sources During the last year, roughly one in five Replacement 100 companies has changed its number one lead source. Often this has been a matter of DNC laws making telemarketing difficult.
But telemarketing is far from dead. It may not take the form it did 10 years ago, but many companies still rely on some combination of warm and cold calls to locate prospects. Others, confronted with consumer backlash, the threat of fines, and the need for substantial investment in software and equipment, have looked for alternatives. For some, canvassing fills the void.
Prince William Home Improvement, in Woodbridge, Va., generates 23% of its business from canvassing, a long-time staple of its marketing operation. President A. Scott Holtzhauer says Prince William's canvassing is successful because it's part of a two-step process: following up mailers with canvassing calls and canvassing selectively around jobsites.
Holtzhauer says he expected to see more home improvement companies canvassing after the DNC list went into effect, “but we don't see as many as we thought. It may be that they just don't have a system yet.”
Meanwhile, some Replacement 100 companies report that direct mail, a favorite medium for home improvement companies, is proving less effective.
“There were years when we were getting 7 responses per 1,000 mailings,” says Mark Leen, vice president of Mark Four Enterprises, in Fairfield, N.J. “We might be lucky to get one in a thousand today. Of course it depends on the piece. But what happens over time is that markets become saturated with small companies mimicking the bigger players.”