The True Cost Per Lead
By Jordan Evans
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You're running a service area business, and like many, you've probably wondered, “How much should I be paying for leads?” It’s a crucial question, and getting it wrong could mean wasted money, lost opportunities, and even business failure. But the answer isn’t as simple as a dollar figure—it’s about understanding the real value of a lead.
Why the Wrong Cost Per Lead Can Sink Your Business
Imagine you’re a plumber in a competitive market. You’ve got the skills, the tools, and the drive, but your phone isn’t ringing. So, you invest in leads, thinking this will boost your business. You find a provider offering leads at a bargain price—$10 per lead! It seems too good to pass up, and you dive in.
At first, the volume is there. But soon, you notice something’s off. The leads are low-quality, coming from people who either aren’t serious or are simply shopping around. You spend hours chasing these leads, only to find that most of them never convert. Your team is frustrated, your time is wasted, and your budget is drained. Worse, you’ve lost potential clients to competitors who invested in better-quality leads.
The real cost? Not $10 per lead, but hundreds—maybe even thousands—of dollars in wasted time, lost revenue, and missed opportunities. All because you focused on the price tag instead of the value.
Finding the Sweet Spot: What’s a Lead Really Worth?
So, what’s the right amount to pay for a lead? It’s not just about the initial price; it’s about the return on investment (ROI) and the long-term value that lead brings to your business. Let’s break it down:
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Quality Over Quantity: A high-quality lead from someone genuinely interested in your services is far more valuable than a cheap, low-quality lead. For instance, if a $50 lead converts into a $1,000 job, your ROI is significant. But if a $10 lead results in nothing, you’ve just thrown away money.
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Consider Your Market: In highly competitive markets, leads are naturally more expensive because the demand is higher. However, these leads also tend to be more serious, as customers in these markets are more likely to be ready to buy.
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Calculate Your Customer Lifetime Value (CLV): How much is a customer worth to you over their lifetime? If you’re in HVAC and know a satisfied customer will call you for maintenance and repairs over several years, investing in higher-quality leads makes sense. Paying $100 for a lead that becomes a long-term client worth $5,000 is a smart investment.
How to Get the Most Out of Every Lead
Let’s say you’ve decided that investing in higher-cost, higher-quality leads is the way to go. How do you ensure you’re squeezing every drop of value out of those leads?
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Follow-Up Matters: A study from MIT showed that responding to a lead within 5 minutes increases the chances of conversion by 21 times. If you’re investing in high-quality leads, make sure your follow-up process is airtight.
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Nurture Leads Over Time: Not every lead will convert immediately. Some might need more time or information before making a decision. Create a lead-nurturing process that keeps you top of mind without being pushy. When one business’s short-term nurturing sequence was disabled, a sharp decline in first-time subscriber rates, plummeted by roughly 40%! Nurturing is a process we often don't think about, but it's simple and can boost sales with nearly 0 overhead.
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Track and Adjust: Use data to track which leads are converting and adjust your strategy accordingly. If you find that leads from one source convert better than another, consider reallocating your budget to maximize your ROI.
The Bottom Line
The cost of a lead isn’t just about the number on the invoice. It’s about the potential revenue that lead can generate for your business and how effectively you can convert that lead into a paying customer. By focusing on quality, understanding your market, and refining your follow-up processes, you can turn leads into loyal clients and, ultimately, into sustained business growth.
Your Next Step
Now that you understand the true value of a lead, it’s time to assess your current lead generation strategy. Are you investing in quality? Are you getting a strong ROI? If not, it might be time to rethink your approach.
Ready to elevate your lead game? Start by calculating your current cost per lead and customer lifetime value, then explore options that offer better-quality leads. Your business—and your bottom line—will thank you.
