How much should you pay for a lead?

How much should you pay for a sales lead? It depends, but the numbers suggest budgets of between 1 and 5 per cent maximum for overall marketing initiatives.

A key question in marketing AEC services is how much you should spend to achieve your desired results. This isn’t an easy calculation, especially for designers and contractors working on high-ticket projects. The types of statistical and measuring tools useful for consumer product purchases and higher volume/lower ticket price business-to-business sales don’t really work so well when you are dealing with multi-million dollar projects with incredibly long lead times from initial conception to conclusion.

The story is easier for residential contractors who may work on several (or if larger) several dozen projects each year.

Michael Stone, in taking shots at leads services that purport to offer value by charging a 5 per cent commission on successfully executed leads, writes:

You should only pay 3% to 5% total for marketing in remodeling, 1% to 2% for new home construction. When your overhead expenses get too far out of line, whether it’s because you’ve opened a showroom that you can’t afford, you have too many office employees, you’re paying yourself too much salary, or you’re being charged 5-10% of your sales price for leads, your business is at risk. You’ll have to increase your markup to cover the additional expense. Every job will have a higher price, and when it comes to increasing your markup, there’s a limit to how high you can go.

There can be an argument about where marketing budgets can be augmented with additional business development (sales) costs; and if this allows room for some additional budget for leads, especially if they are essentially pre-sold (guaranteed).

If you are aiming for projects such as $3 million schools or $10 million corporate headquarters, when you have a 1.5 per cent marketing and business development budget, this gives you $45,000 for the school and $100,000 for the corporate headquarters. Smaller businesses can embed some of these costs in the owner/principal’s salary (and often indeed the owner must be the primary business developer at start-up stages). Many of these projects are publicly bid, so you shouldn’t have too much cost in finding the lead — the issue will be in converting it. (The development costs in public/private partnership ventures may be much higher, and presumably will need to be baked into the yield if the proposals are accepted, perhaps indicating hidden additional costs in these sometimes complex ventures.)

With these numbers, however, the importance of a solid go/no go strategy is vital. You don’t want to be spending tens of thousands of dollars in RFP responses which you don’t have the faintest chance of winning. It is counter-intuitive, but often wiser, to spend the marketing and business development funds at early stage-relationship building initiatives, which may not immediately translate to work, and restrict the RFP responses to where you have a high success probability.

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