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Where do your leads come from? An under-the hood view of the home improvement lead generation business

August 25, 2020

Written by Ari Greenbaum, co-founder of conXpros

One of the most frequently asked questions posed by inquiring home improvement pros to any lead generation company is “how do you generate your leads?”. Having been on both sides of the business, the lead generating side as well as the contractor side, I have heard my fair share of answers to this question. I have heard everything from a basic “from online sources” to fancy answers that require a bachelor’s degree in marketing to fully comprehend. I have been in this business at a high level for a long time, well over 13 years. I have seen many aspects of the industry change, but none more impactful than where and how leads are generated. What I am about to share in this article may not make me a ton of friends within the lead generation community and some unfriendly looks at the next LeadsCon. Regardless, you have my assurance that it is all based in truth and (sometimes shocking) fact. I do not consider this as “whistle blowing” since there is nothing inherently wrong with the activities, I plan to shed some light on. However, not all lead generation companies are created equal. This point is most glaringly evident when revenue and profits are on the line, and the actions motivated by these factors. Here we go…

Where do your leads come from?

If I was answering this question 10 or more years ago, the response would be the same from every lead generation company focused on the home improvement vertical; “we use paid keyword advertising (PPC, Google AdWords), organic search (SEO), banner ads on other related websites, and remarketing campaigns towards homeowners that previously used our service.” Back then, each lead company WAS different in the leads they generated. This was due to the fact; each lead generator was actually generating their own leads using these above listed avenues. So, the homeowner that used the Service Magic (now HomeAdvisor) website after finding a link on a search engine would only be available to you as the home improvement contractor if you were a client of Service Magic. The same would be true if you were a client of Networx. A lead you received from them would have been generated by their paid keywords, SEO, banner ads, or remarketing, and therefore only available to you as a customer of Networx. This was the case industry wide. Lead generation companies did not sell their leads to other competitive companies, primarily due to the complexities involved with how to make that happen and not lose the “real -time” nature of an online generated lead. This gave justified reasons for a home improvement pro to utilize multiple lead generation services for their paid lead budgeting. After all, you would only have access to the potential lead through that particular service.

Bob Dylan wrote the famous lyrics “the times, they are a changin”. Just like most aspects of business and life, the lead generation world evolved with the advancement of technology, some for the positive, some not so much. Over the last 10 years, the lead generation business has changed significantly. The primary driver to this change was the advent of the ping post or ping tree system. If you are not familiar with the terms, there is some helpful articles available on the web to gain more detailed understanding. For the purposes of this article, I will give a brief explanation of ping post. Ping trees allow for someone that is generating leads to simultaneously send particular aspects of that lead (typically the project type and location) out to limitless recipients at the exact same time. Each recipient can either accept the ping and respond with an amount they are willing to pay or bid for the lead. The originator of the lead then determines the highest bidder and then posts the full lead info to that singular buyer with the winning bid. This all sounds complicated, but it is all automated through an Application Programming Interface (API) between multiple computers and happens within microseconds. Bottom line, the recipients of the pings bid & the highest bid wins. The ping post system created a ton of opportunity for access to homeowner leads that never before existed. As a result, clients of lead services are no longer receiving leads that are exclusively available through the lead generator they work with. Essentially, we are all fishing from the same pond.

The ping post market also provided more opportunity for lead generation companies to run lead campaigns in all locations (nationally) as opposed to geo-targeted as in the past. Many lead generation companies generate our own leads through campaigns using landing pages found through traffic from search, social ads, & display ads. We can run these campaigns without too much worry about locations, unlike the past when unmatched leads would be wasted and chew up profitability. Why would you want to pay to generate a lead that you do not have a buyer for? Ping post allows for the surplus, or unmatched leads in a lead generators system to be sold and therefore monetized. To put it simply, there are very few if any lead generation companies that are not buying and selling leads to each other. The home improvement lead generation business is a very “incestual” world.

Let us put these ideas on the side burner to allow us to better understand the hierarchy in the modern lead generation world. There are 2 types of lead sellers: lead aggregators & affiliates. Lead aggregators are a fancy name for middlemen. Aggregators, buy and sell leads from large numbers of sources to make their money by playing the “broker” and making a margin on the resale price in a dynamic pricing model. Aggregators can be a good resource (more often they are horrific) due to their connections with many original sources of leads that otherwise would not be available. The challenge is that they are middlemen, leaving them at the mercy of the people that they are getting the leads from and the quality or lack thereof that they produce. Unless an aggregator is genuinely on top of their sources and consistently making optimizations or adjustments, the quality will suffer. Unfortunately, too many aggregators fall into this category and one of the primary reasons we at conXpros steer away from them in general. The second type of lead source, affiliates, offer potential for a higher quality control as they are the actual source of the lead. Affiliates are generally companies or individuals that are great at online marketing. They have landing pages that rank extremely high organically, expert ads on social media, use the display network, and other means of generating a homeowner interest in connecting with a contractor for a project or quotes. Affiliates can either sell to many buyers via ping post, or maintain exclusive relationships with one buyer (also referred to as direct post/static pricing). When a lead generation company has a quality affiliate on an exclusive agreement, we hold onto them like gold.

Pings for leads from aggregators and affiliates get passed around like a joint at a Grateful Dead show. We work with a few dozen sources which is made up of a few aggregators & mostly affiliates. There is not an hour of the day that goes by when I do not see the exact same lead pinged to us as a potential buyer from 4-5 of these sources at the exact same time! It is not hard to figure out when all of the 5 pings come form the same zip code for the same project within microseconds of each other. It is virtually impossible for these to be unique requests. Sometimes we will win these from source “A”, other times from source “B”, etc. The determining factor is which one of these sources accept a bid as the highest and post the lead to the purchasing party before the others. Thankfully, the technology allows buyers to prevent receiving duplicates to a high level (not perfect) and will “post reject” if the same lead was already purchased moments earlier.

The easiest way to confirm what I am sharing is to do a google search for yourself. Do it in any category for any location in the US. You will find the paid ads at the top of the results that will know your computer’s location and will be made up of a few large name brands (for example when searching for plumbers, the national franchise company Roto-Rooter is one of the first ads I see) and the only paid ad from a lead generation company is from HomeAdvisor (they are a multibillion dollar company with a huge number of clients to satisfy lead demand and the capital to dominate the PPC space) and Improvenet (the homeowner facing site for CraftJack, which is owned by… HomeAdvisor). You then get the local pack of results (Google Maps). Next the organic results (SEO) which is a mix of high-ranking lead generation landing pages and local companies with strong SEO. Finally, there are more paid ads that will include the same mix as the grouping at the top of the page. What you should be asking yourself is the following: there are dozens of lead generation companies out there, so how can they all get leads for their clients if they are not showing up on the search?

To provide a complete idea of where leads come from, it would be irresponsible of me to only focus on search. There are other methods used in conjunction with search to make up the lead pool. Social media ads are one of the primary ways to capture homeowner interest without having good SEO or endless ad spend for PPC. There are many social sites used, but the premise is the same; create ads that result in homeowners clicking, entering a funnel, and ideally converting into a request that can be sold as a lead. There are also leads being created in a similar fashion but on what is known as display ads. Display ads are the ones we all see when we are surfing the web and on websites. These are the ads that appear in the middle of the article or page you are reading. Display ads are based on data collection of recent search and web activity and are designed to “display” products or services you likely have an interest in as a result. Both social and display can be effective if done correctly, but the revers is true as well. This is where we are at the mercy of the advertiser and the ad content they use. Unfortunately, there can be misleading ads designed to get the info, regardless of quality. Sometimes, incentives are used, such as entry into a giveaway or reward for submitting info (clearly not intent to get quotes). Another low-quality method of lead generation is known as co-registration. Common examples of this would include a homeowner applying for an auto loan online and before they can complete the application, they are presented with other “offers”. These can be to get a quote for a new roof, quotes for life insurance, etc. Co-reg is highly frowned upon by most lead companies, but it is unfortunately out there and used more often that you would expect. There is another method to generate leads but not in mass numbers; remarketing to homeowners that previously used your lead platform to connect to a professional. Typically, this is done through email campaigns and can generate some very solid leads but requires a massive database of homeowners to see a handful of new leads at the end of the funnel.

Most lead companies, including my own, try to gain a piece of the search driven market by working on the SEO of our site(s) to generate our own leads. So, yes there are still leads available to contractors uniquely through that source, albeit far less than the past. As more and more local companies become savvier in their own efforts to rank on relevant search terms, the opportunity to create “self-generated” leads by a lead generation company diminish.

I will use an analogy to summarize thus far, there is a large pond stocked with a variety of fish. Some are keepers and many are not. There are a few small, private, unstocked fishing ponds, but they cannot sustain you on their own. All of the fisherman are crowded around the one large pond with their lines in the water. The ones with the most expensive lures will catch the most fish. Many will be “keepers”, but the throw backs are inevitable. 99% of lead generation companies have their lines in the same waters as their competitors.

How can I use these insights to help my home improvement company maximize my results?

In May, I shared an article titled “HOW TO CHOOSE THE RIGHT LEAD GENERATION COMPANY: IT’S ALL ABOUT THE LEAD CREDIT POLICY”. In this article I detailed the importance of understanding the lead credit policy of any lead generation company you choose to work with. Combine this concept with the information provided above, the smoke should be lifting, and the answers seen clearly. Other than a small percentage of leads that are uniquely generated by your lead provider, the leads you receive are the result of the ping post market. Knowing this, who would you want to work with, a company that expects you to pay not only for the “keepers” but also the “throwbacks”? or is it in your best interest to find lead generation companies that only expect you should pay for leads that are genuine opportunities? At the end of the day it is about return on investment (ROI). If you are paying for leads that are not genuine opportunities, you are likely hurting your ROI and increasing your lead acquisition costs.

Another critical concept is the fact that as lead providers, we live in a data driven world. Some companies are more advanced in their data and analysis than others. Regardless of the level of sophistication, ALL lead companies have the ability to be aware of the sources that your leads are coming from. Unfortunately, most lead companies do extraordinarily little optimization of their lead sources. At best, they do optimizations at a global level and rarely at the client or account level. It does require a decent sample size of data to determine any actionable optimizations, but there may be sources that are fantastic for a category for most of the US, but for some reason, the quality is terrible in a single location. It is important to find lead companies to partner with that understand the necessity to optimize their leads & sources not only on a global level, but also on an individual client level. Most lead generation companies do not do this because it requires a great deal of resources and time. When the primary objective for that lead company is focused on revenue and profitability, it is easy to understand why they make these choices. However, when the primary driver for the lead company is the client success and results, the choice to optimize and improve results is a no-brainer.

The advent of ping post has its positives and its negatives. On the positive side, as a home improvement pro, you have access to more leads from homeowners by working with ANY lead generation company than you would have experienced in the past. Yes, you need to be with a lead generation company that will bid for those opportunities aggressively which results in a steady lead flow, but the exposure is there to most of the available web generated leads. On the downside, you are at the mercy of the sometimes-dirty world of lead generation. A world where bad leads exist and come from sources that are less than scrupulous. For these reasons, you as the client and consumer must protect yourself. Make sure that you are partnering with a company that has your best interest at the forefront of their decision making. This does not guarantee success, but at least you can rest easy knowing that you have a partner working for you as opposed to you working for them.

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