A year ago, after much publicity, the Federal Communications Commission launched its National Do-Not-Call (DNC) Registry, complete with a Web site and toll-free number. The FCC invited Americans fed up with telemarketing to place their names on the list, which would shield them from unwanted commercial callers. It also threatened companies that called anyone on the list with a fine of as much as $11,000 per violation.

Today, the list contains almost 63 million names, a response so overwhelming that it has to be some kind of milestone in the history of marketing.

The new federal regulations are seen by many as the beginning of the end of telemarketing. Combined with state DNC lists, the effect of the federal DNC registry has been to diminish the number of potential customers for windows, siding, roofing, sunrooms, and other products sold by contractors who specialize in home exteriors. At least that's the case for some companies, particularly those that — hoping and praying for legal intercession — waited until the 11th hour to begin exploring alternatives.

Those are the kinds of companies Kalliope Eaton, president of Midwest Construction & Supply, a window and siding operation in Mason City, Iowa, says are now cropping up in media advertising.

“We've always had a small ad in the paper,” Eaton says. “I opened it up this morning to see four ads by companies in the same business we're in. And this is a town of 30,000 people.”

Eaton, whose father started the company in 1958, says she's seeing new competitors turn up on television and radio, as well, and is thankful that Midwest Construction, once heavily involved in telemarketing, moved to media a few years ago.

For many on this year's Replacement 100 list — a compilation of the top home improvement companies in the United States, ranked by volume of replacement products sold —the question is, Where will leads come from now? And if those leads are different, in quality and quantity, how will that affect the sales process?

Last year, telemarketing was the lead source that produced the most revenue for 18% of the companies listed in the Replacement 100. This year, that's fallen to 13%, and every indication is that telemarketing will continue to diminish as a source of new business. “Telemarketing was our biggest lead source,” writes Robert L. Cox, vice president of Rolox Industries in Grandview, Mo. “The do-not-call list has changed the business.” Rolox, a $10-million window and siding operation, has switched to direct mail.

At Advanced Home Technologies in Clintonville, Wis., telemarketing once produced 80% of the company's leads. Today, in-store kiosk leads produce more revenue than any other source for this door and window company.

“Less telemarketing, more advertising,” writes Greg Williams, of Cal-Tec Enterprises in Fresno, Calif., where, like at many companies, both marketing costs and the price of a lead are up.

Telemarketing has always been good for its ability to produce low-cost leads on demand. “The thing with telemarketing,” Eaton says, “is that you could put six or eight people on, and they could dig a lead up for the next day.” Today, restrictions make that far harder.

Survey information from this year's Replacement 100 companies shows that roughly a third have changed their lead model in the past few years. That information also shows that the average cost of a lead — raw, confirmed, set, booked, or issued — rose from approximately $178 for last year's top 100 companies to $191.50 this year. Leads cost more because to find them companies have migrated into areas — television, for instance — that are far pricier than operating a phone room. Such leads are also necessarily harder to get. Not surprisingly, then, a majority of the Replacement 100 — 53% — say lead costs are up. Even companies using telemarketing (and 57% of the 100 report that they still use it as a lead source) say costs have risen.

“Telemarketing is still inexpensive,” says Pat Pagano, sales manager at American Siding & Window Systems in Urbandale, Iowa. “But compared to what it was before the [national DNC] list, it's much more expensive, because of the technology you have to buy to keep up with the law.” And don't forget the cost of legal advice.

Has your No. 1 lead source changed in the past year?
No 62%
No answer 9%
Yes 29%

Pagano, who says his company operates one of the largest phone rooms in the industry, expects American Siding & Window to grow by 15% to 20% this year, with telemarketing continuing to provide the majority of the leads.

“We're now talking to the people who are open to telemarketing,” he says. “I don't see how that could be a deterrent.” Yet the $15-million operation is also for the first time trying its hand at television, broadcasting 30-second spots with a toll-free number programmed to collect prospects. They have proven, Pagano says, to be “very effective, but very costly.”

For a quarter of the top 100, referrals and repeats, which we've combined in our chart because they often blur in practice, produce more revenue than any other lead source. Television now ties telemarketing for second place. As telemarketing's prospects have dimmed, several companies report having redirected their efforts into canvassing. Others, like those competing with Midwest Construction & Supply, find themselves testing the media waters. Internet referral sites such as Improvenet and Home Service Solutions have taken on a whole new importance for many companies. “Our Internet leads used to be 2% five years ago,” says John Bryant, manager of Mid-Atlantic Waterproofing, a five-branch operation in Maryland and Pennsylvania that specializes in waterproofing basements. “Now, it's 15% or 20%.”

Michael Pirwitz, president of Revive Home Improvement Showrooms in Columbus, Ohio, says that not only are Internet leads way up, they're yielding a different kind of prospect. “It's a little higher clientele,” he says. “A little more intelligent — the people who go on the Internet to find things.”

At Mid-Atlantic Waterproofing, one consequence of changing lead sources, Bryant says, is that booked leads (those with demos actually scheduled) have gone from 40% of inquiries to 70%. That's because the company is reaching a more serious customer.

Murray Gross, chairman of U.S. Home Systems in Lewisville, Texas, one of the largest replacement contractors in the United States, says that in 2000, “telemarketing was 50% of our leads and 40% of our sales.” Last February, U.S. Home Systems closed its cold-calling operation, having in the meantime redirected its marketing dollars into media. Gross says that, more than any other types of companies, home improvement operations took a hit from the national DNC law. “I think everyone [in this industry] has seen some impact from it.”

For some, that impact has been negligible, but the search for new lead sources never stops. Southern Industries, a 40-year-old siding, window, and gutter company in Augusta, Ga., stopped cold calling years ago. The reason, according to sales manager Charles Gorse, is that in a market of 400,000, the company's phone room personnel were hitting the same homes every six to eight weeks, and respondents were too annoyed to care what Southern Industries had to offer. Finally, Gorse says, the company “unplugged the dialer and threw it in the closet.” After which Southern Industries became one of the first window and siding operations to go on television.

“Leads started pouring in like manna from heaven,” Gorse recalls. But what Southern Industries discovered was that those leads eventually fell away, also due to the size of the market. Southern Industries had skimmed the cream off the top. “After a period of years, it becomes harder and harder to get that lead, so you have to do more and different things,” Gorse points out. For his company, that means peach festivals, watermelon festivals, raffles, giveaways, and other methods of getting consumer attention and turning that attention into product interest. Shows and events produce more revenue than any other lead source for the company.

To generate leads, home improvement companies are inclined to spend a much greater proportion of their revenue on marketing than are other types of businesses. The average in our survey, 10.7%, reflects a range of marketing expense, from 2.5% to 20% of revenue. Many Replacement 100 companies report spending upward of 15% on marketing.

Down on the other end of the scale are the handful that spend less than 5%. How? Invariably, repeats and referrals constitute the bulk of their leads.

Take California Replacement Windows in Anaheim, Calif. Referrals and repeats provide 80% of leads. President Jerry Kerby reports marketing costs at 3%. Kerby, once a bank vice president, says the $9 million company will expand sales by 30% this year (“and that's no baloney”) using its “non-threatening sales approach,” designed to remove all tension from the selling process.

Such an approach is seen as the first step in obtaining total customer satisfaction, which, any contractor would agree, is the key to getting referral leads. California Replacement, which offers two top window brands, invites consumers to submit measurements and get a price for their windows on the phone before a salesperson even visits. Prospects can stop by any of the company's six offices and get a free literature package and an informational DVD without submitting their name or other contact information. It's up to them to call and let the company know they're interested. Kerby says that in Orange County, where the average house is worth $428,000, “these are sophisticated consumers, and they want information to make an intelligent decision.”

Get the Leads Out

What sources do you use for leads?
Referrals 96%
Self-generated leads 89%
Repeat business 87%
Web site 87%
Home shows 81%
Truck signs/job signs 79%
Yellow pages 79%
Direct mail 75%
Television/cable 62%
Telemarketing 57%
Newspaper/magazine ads 56%
Door-to-door canvassing 54%
Events 54%
Newspaper inserts 50%
Inserts via printed media 47%
Radio 47%
Mall shows 40%
In-store kiosks/SFI 38%
Manufacturer-provided 28%
Marriage mail 24%
Billboards 14%
Internet lead providers 13%
Walk-ins/showroom 6%

What lead source generates the most revenue?
Repeat/referrals 25%
Television advertising 13%
Telemarketing 13%
Direct mail/marriage mail 9%
In-store kiosks/SFI 9%
Shows/events 7%
Door-to-door canvassing 5%
Newspaper ROP/inserts 4%
Yellow pages 2%
All other 7%
No answer 6%

Average lead cost for Replacement 100 companies: $191.50

In the past year, has your average lead cost gone up, gone down, or stayed the same?
Up 53%
No answer 7%
Down 14%
Stayed the Same 26%

Money Talk

Average marketing cost as a percentage of total sales revenue for Replacement 100 companies: 10.7%

In the past three years, have your marketing costs as a percentage of total revenues gone up, gone down, or stayed the same?

Sales Force

Salespeople who work for home improvement companies make a good living. Among the Replacement 100, they average nearly $74,000 in annual income, including salary, commission, and bonuses. And while they love money, salespeople also love stability. Many of the companies surveyed offer their sales staffs an array of benefits, starting with health insurance and a 401(k) or other retirement account. Nearly 40% of surveyed companies supply salespeople with cell phones or pay part of the salesperson's cell phone cost. Most have sales bonus programs.

Keeping the sales staff happy pays off in the long and short runs. Southern Industries' Charles Gorse says he hasn't spent one dollar recruiting salespeople in the past three years. People simply show up at the company's offices, wanting to apply for positions. The reason, he figures, is simple: “The people I have make a good living. And news — good and bad — travels fast.”

Typically, one way for home improvement companies to expand is to hire more salespeople. Yet the role of the salesperson is changing at some companies. Most remain committed to the one-call close, at least for window, siding, and gutter sales. But others, such as California Replacement, have revamped sales procedures to take a less aggressive approach.

Can those selling windows, doors, roofing, siding, and other jobs that average less than $10,000 ever back away from the industry's bedrock sales approach, the one-call close? U.S. Home Systems' Murray Gross, a 25-year industry veteran, doubts that could ever be the case. “If you're talking about major kitchen remodeling, where they're spending $50,000, that's not a one-call close. Windows, siding, roofing? That's a one-call close, and I don't think it'll change.”

Average number of salespeople: 29
Average number of jobs sold by a salesperson in a year: 101
Average size of job sold: $8,675
Average annual revenue per salesperson: $691,904
Average total compensation (salary plus commission, bonus, etc.): $73,734

What benefits do you offer?
Group health 73%
401(k) or similar 57%
Cell phone 39%
Vehicle/car allowance 28%
Other* 13%
* Includes company trips, dental insurance, life insurance, disability, ESOP, percentage of net profit, paid vacation, paid holidays, profit sharing

Do you have a sales bonus program?
Yes 82%
No answer 9%
No 9%

The Replacement 100

About the Survey

The Replacement 100 ranks the leading U.S. companies engaged in the replacement of roofing, siding, windows, decking, and ancillary product lines that participated in our 2004 annual survey of home improvement companies. Data collection for the 2004 survey commenced in May with a survey of 293 companies identified by the REPLACEMENT CONTRACTOR editorial staff. The survey resulted in a 41% response rate. To participate in next year's survey, contact Jim Cory, editor, at 215.923.9810 or jcory@hanleywood.com.