Every company has its own approach to developing a winning mix of lead sources.

Source: REPLACEMENT CONTRACTOR Magazine
Publication date: 2005-11-01

By John Caulfield

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 <i>why</i> 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”).

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.

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.

Bruce of American Home Design notes that his lead costs for Renewal by Andersen products average 14% of sales, whereas contractors he knows in other markets where the Andersen brand is better known spend just 5% on leads. These market-by-market disparities leave the door open for debates among contractors over the relative merits of different media.

Over the years, Barratt says, First Coast Rainguard has tried and stopped using radio, postcards, glossy magazines, and billboards. On the other hand, he's found the Service-Magic and SunroomTree.com Web sites to be productive lead sources. Total Remodeling also draws “lots of leads” from its own Web sites, says Edwards (though he won't say how many). And Melani Bros. is attracted to the Internet, partly because Internet lead costs are just 3% of sales.

But the Internet has been a major bust for other companies. Alure Home Improvements, in East Meadow, N.Y., recently conducted its first e-mail blast to 100,000 people, a tactic described as “an absolute failure,” by Alure marketing director Seth Selesnow.

Despite audience fragmentation and other drawbacks, TV is still hard to beat for getting customers' attention. Archadeck has placed ads on HGTV since 1996, and that network's programming “is a perfect fit for us,” Kiger says. Alure promotes its Owens Corning basement division on TV because “OC is a recognized name; it's a unique product and we're the only ones (in our market) carrying it,” Selesnow says.

Print media is still effective for some companies. Metropolitan Siding & Windows, in Waldorf, Md., has had “surprising results” from ads in local penny savers. Converted to sales, these prospects “spend as much as any lead,” claims Metropolitan's vice president William Richmond. But many contractors have all but abandoned newspapers as a way of finding new customers.

“Newspapers in our market are dying,” asserts Lloyd Gillman, president of Chicago-based ABC The Window Guys, a $16 million-per-year window installer. Instead, ABC — which opened its second branch, in Northwest Indiana, in April — finds direct mail to be its sturdiest lead source. Using a service called Local Values that's offered by media giant The Tribune Co., ABC places ads on a wrap that goes around inserts mailed twice weekly to 2.2 million single-family homes.

Direct mail came to Melani Bros.' rescue two years ago after Lowe's discontinued its in-store sell/ furnish/install (SFI) program, from which Melani at the time derived a staggering 91% of its sales. The contractor turned its lead generation over to a company called Sudden Impact, which developed a comprehensive direct mail program that sent out more than 600,000 pieces last year, and added 30,000 people to Melani Bros.' database. Those mailings, Menendez says, yielded more than 2,100 appointments and $2.9 million in business. The company's revenue rose to $16 million in 2004 from $9.6 million in 2003, and was up 20% through June 2005. Melani Bros. still gets one-fifth of its sales from SFI, but Menendez wants to reduce that to zero by next year.

Melani Bros.' most fertile lead source continues to be shows and events. The company participates in at least 40 per month, ranging from home shows to one-day seafood festivals. Alure sends trailers for its roofing, siding, and insulation products to the 30 home shows and 15 to 20 events — carnivals, oyster festivals, pet and flower shows — its demonstrators attend monthly. And this fall, ABC will start participating in home shows for the first time, expecting to exhibit at 12 to 15 over the proceeding six months.

Menendez refers to events as “expedited canvassing” because Melani Bros. can show off its products and services to many prospects at once. But several contractors point out that home shows — or any other lead source, for that matter — are components within an integrated marketing matrix that, ultimately, is only as good as what salespeople do with the leads they receive. <i>—John Caulfield is a freelance writer and editor based in New Jersey.</i>

As contractors try to retrieve some of the business they have lost from Do Not Call tele-marketing restrictions, many have turned to canvassing.

Metropolitan Siding & Windows, in Maryland, for instance, fields 56 canvassers out of its two sales offices and canvassing is its most effective lead source. And Virginia-based Melani Bros. did canvassing “poorly” until it hired a new canvassing manager, who now has Melani's 7 canvassers finding leads that produce $400,000 in monthly sales. American Home Design budgeted $100,000 for canvassing in 2005, and owner Don Bruce expects to have a 10-person team in place by the year's end.

But Bruce, like other contractors, is ambivalent about this practice. “I hate to do it, but we have to,” he says.

They have good reason to be wary, based on the recent experience of Patterson Home Improvement, in Jacksonville, Fla., where success with canvassing has been decidedly mixed.

Owner Rex Patterson notes that for 10 years he has used a husband-and-wife canvassing team, whom he describes as “seasoned pros that don't need any managing.” The team brings in $800,000 in sales annually. For a while Patterson also employed a second team, comprised of 10 to 15 high school kids, that was far less successful. He recalls these canvassers as difficult to manage, and the leads they brought in as difficult to convert to sales. More problematic, the group's constant turnover affected the experience modification rate for the company's unemployment insurance. “We wound up paying $10,000 in unemployment taxes because of that,” he says.

Patterson says that he's since eliminated that team and hasn't needed to rely on canvassing as much because sales from other lead sources have been strong. Were he to go back to canvassing, though, he says he'd set up a marketing division that was separate from the rest of his operation.