Pay per click doesn’t work for contractors.
It’s not a long-term growth strategy.
It’s a waste of money.
These statements are true—for contractors that don’t know their numbers.
Knowing your numbers is the KEY to making pay-per-click advertising work for your contracting business.
In this blog post, we’re going to help you figure out those magic numbers so that you can decide—with near certainty—whether or not PPC is the right marketing tactic to help grow your home service business.
By the end of this blog post, you’ll come to one of two realizations:
- You have the right numbers to grow profitably with pay per click right out of the gate
- Your existing numbers aren’t quite where they need to be in order to make it work
Either way, you’ll know exactly where you stand so that you can get to work on improving your numbers, setting up your winning pay-per click-campaigns, or look for another marketing alternative altogether.
Here goes nothing…
Step 1: Knowing your average ticket price
It all starts with knowing your average ticket price.
If you only sell one product at the same price over and over again, you’re in luck—your average ticket price is simply the price of your single product.
If you sell many different products—like asphalt, slate, and metal roofs for example—then you’ll have to come up with an accurate average ticket price.
An easy way to do this is to look at your total sales amount within a given period, and then divide it by the number of transactions/products sold within the same period.
Sticking with our roofing example, say you generated $1,000,000 in revenue during Q1 by installing 54 new roofs for customers.
With quick back-of-the-napkin math, that means your average ticket price comes out to roughly $18,500 ($1,000,000 divided by 54).
Quick & Dirty: Average Ticket Price = Total Sales ÷ Number of Products Sold
Boom! You’ve got your first magic number. Write it down, you’ll need that later.
Onto the next…
Step 2: Knowing your average profit margin
Here’s where you have to figure out your average profit margin per job.
In other words, with each sale, how much profit do you make once you subtract labor, equipment, materials, and other related costs?
Again, we’re looking for an average here. If you make 40% profit on some sales but only 15% on others, go with something in the middle. It’s always better to be conservative when coming up with your average profit margin.
If you’re unsure, it might be worth your while to sit down and do the math to figure it out once and for all. You’ll have a much better pulse on your business.
Quick & Dirty: Average Profit Margin= Profit – Costs
Besides, you’ll need this number to continue on through this exercise.
Step 3: Knowing your sales closing rate
If there’s one thing we’ve learned working with many different contractors over the years, it’s that most of them overshoot their sales closing rate.
They think they close 1 in every 3 leads that come their way, but in reality, it ends up being more like 1 in every 5, 6, or more once we begin to track their closing rate over time.
Keep this in mind when coming up with your own closing rate—it’s likely lower than you believe it to be.
To find an accurate sales closing rate:
- Tally up all the leads you’ve received over the last 90 days
- Subtract any lead that was referred to you from either an existing customer, referral partner, or other trusted source (the closing rate on referred leads will always be higher than the average)
- Out of the remaining leads, how many became customers?
For example, if you generated 212 leads in the last 90 days, and 60 were referred to you by existing customers, then you should use 152 as your total number of leads for the period.
Out of these 152 leads, if 38 went on to become customers, then you can determine an accurate closing rate of 25% (38 divided by 152)
Quick & Dirty: Closing Rate = Signed Customers ÷ Leads (minus referrals)
There are always outside factors that come into play (ex: seasonality, deals that take longer to close, etc.), so keep that in mind when calculating your closing rate as well.
Again, it’s better to be a little conservative when determining your sales closing rate.
Step 4: Figure out an average cost per lead
This is a tricky one for most contractors, especially if they’ve never done any pay-per-click before.
Truth is, the average cost per lead varies across the industry, region, and more.
The good news is, this is the ONE number that you can easily manipulate through improvements to your pay-per-click campaigns—things like boosting Google Ads quality scores, modifying bids and positions, finding new keywords, increasing landing page conversion rates, etc.
If you have absolutely no idea where your average cost per lead falls, then give this formula a try:
- Add up your total marketing spend for the year
- Add up your new leads for that same time period
- Divide your marketing spend by the new leads
Quick & Dirty: Average Cost Per Lead = Total Marketing Spend ÷ Total New Leads
Keep in mind that a lead from pay-per-click is exclusive. This means it hasn’t been sold to 5+ other contractors (as is the case with most pay per lead services, which tends to cause price wars). With pay- per-click, leads tend to be a bit more expensive but the quality tends to be a lot higher.
Now tell me, is there anything better than that?
Step 5: Decide on a monthly media budget
Last but not least, you need to consider how much money you’re willing to spend each month on pay- per-click to drive leads for your contracting business.
The key is to start with an amount you’re comfortable with, and then adapt once you start to see results.
With time, you’ll quickly settle on an average cost per lead that makes sense for your business—where you know you’re profitable if you can just manage to get leads at that price (based on your average ticket price, profit margins, and sales closing rates).
From there, you can continue to increase your monthly budget as long as you’re still getting leads for less than or equal to that number.
To put things into perspective, we have some customers with unlimited media budgets.
That means we’re allowed to spend as much as we want for them on Google Ads, Bing Ads, and Facebook Ads each month, as long as we’re getting leads at or around their average cost per lead.
Yes, they’re aggressive with their media budget—but it’s because they know their numbers and the math works out in the end!
Conslusion: What actually matters
Pay-per-click gets a bad rap from many contractors and home service providers because they believe it’s a waste of money.
Hopefully, you’ve read through this article and worked out your numbers in order to decide for yourself.
In the end, the name of the game with pay-per-click is to spend $1 on ads and get enough in return to cover your costs (labor, materials, marketing spend) and make a nice profit on top.
If you’re able to do that, then you can spend more on ads, generate more leads, close more sales, make more profit, and grow your business.
You have to see it as an investment rather than a cost.
But it’s only an investment...if you know your numbers!