Work out the most you can afford to pay for a lead

Everybody's buddy gets cheaper leads. Every single buddy. But "what should a lead cost?" is the wrong question. The useful one is "what is a lead worth to me?"

That depends on three things you can measure: what a sale leaves you, how many leads book, and how many appointments sell. Change any one of them and the price you can afford moves.

1. Get your gross profit per sale. What a typical sold job leaves after the job's own costs. Use an average over a real stretch of jobs, not your best one.
2. Measure how many leads book. Out of your leads, what share turned into a set appointment? Count after cancellations.
3. Measure how many appointments sell. Your own closing rate, after cancellations. Give sales enough time to finish before you count.
4. Multiply. Profit per sale times the booking rate times the closing rate. That's what one lead is worth to you, on average.
5. Hold back for everything else. Decide how much per lead you keep aside for your other costs and your profit. Subtract it. What's left is the most you can pay for a lead.
6. Test it. Run with it, compare against what actually happens, and redo the math whenever one of your rates changes.

Fill this in with your own numbers:

WHAT CAN I PAY FOR A LEAD?
(my own numbers, after cancellations)

A. Gross profit per sale:             $______
B. Share of leads that book:          ______%
C. Share of appointments that sell:   ______%
D. What a lead is worth = A x B x C   $______
E. Held back per lead for other
   costs and profit:                  $______
F. Most I can pay per lead = D - E    $______

Now lower C one step (say 1 in 4 to 1 in 5).
New F:                                $______

These numbers are invented to show the math. They're not bids I'm recommending. That's why they're so round.

A sale leaves $1,000 in gross profit. Half your leads book. One in four appointments sells. Take 100 leads: that's 50 appointments and an expected 12.5 sales. No, nobody's sending half a salesperson to sell half a job. It's an average.

12.5 sales times $1,000 is $12,500 of gross profit, or $125 per lead. You hold back $50 per lead for other costs and profit. That leaves $75 as the most you'd pay for a lead.

Now change one thing: one in five appointments sells. Same 100 leads, same 50 appointments, 10 sales, $10,000. That's $100 per lead. Keep the same $50 held back and your ceiling drops to $50. Same leads. Different closing rate. Suddenly that price you could afford isn't so comfortable.

• Using the sale price instead of gross profit. The job's own costs come out first.
• Borrowing someone else's rates. Your buddy's closing rate isn't yours.
• Counting before cancellations, or judging your closing rate before sales have had time to finish.
• Spending the whole "worth" on ads. If you hold nothing back, you've budgeted your profit away.

Your buddy's leads really might be cheaper. So might his closing rate. Ask what happened after he bought them.