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Monday, May 04, 2009

Lead generation services: The controversy continues

Recently, Mark Paskell posted these remarks on the National Association of the Remodeling Industry (NARI) group. The group is officially open only to NARI members, but when I applied to join, I was admitted without hesitation. You need to be a member to read the entire forum thread.

Should NARI lead the charge to expose the unscrupulous tactics of lead generation companies to protect the rights of contractors?

A recent thread on lead generation companies is garnering a lot of conversation about the tactics of lead gen companies. If there were only a few comments every now and then it would be reasonable to dismiss them as insignificant. However the tone and amount of comments on contractor forums and in online groups shows that there is a major consensus that lead gen companies are disingenuous. The comments are on the venomous side and are indicative of a major clandestine business strategy from lead gen companies. Maybe it is time for organizations like NARI, JLC, Remodeling Magazine, Hanley Wood, Replacement Magazine, Qualifies Remodeler, Professional Remodeler and any other significant trade organization or publisher to come to the aid of their customer, the contracting industry, and expose the business tactics that bilk contractors out of millions of dollars.

I know this is asking a lot because many of these publications receive ad revenue from these lead gen companies. But I learned a long time ago instead of complaining at least offer a solution for consideration. Let me know what you think about contractor organizations and trade publications exposing the situation to help prevent contractors from harm.

I responded that, as a publisher, we would not tackle this investigation because of our policy never to write negative stories about individual businesses. (Readers should not imply that I have any anything negative to say any individual leads service business; but that we would not report on the results if we conducted the investigation and then found negative things about individual businesses -- meaning the investigation would effectively be useless.)

The reason for this caution is pragmatic: Whether we are right or wrong, no one wants to endure the risk and cost of defending a libel action. It is simply far too expensive -- and when you read reports about lead services companies at you can see there are many opinions, ranging from enthusiastic support to downright anger at the service these businesses provide (often with the same business loved and hated by different people.) Furthermore, as you read the threads, you'll see that many of the people most angered by the leads companies may have some responsibility for their own problems: Do they really expect by paying $30 to $40 for a lead that they have a sure thing (or something near that?)

Historically, leads service businesses are at the root of the construction publishing industry. McGraw-Hill Construction and Reed Construction Data, the two major media competitors within the non-residential industry, for example, evolved from commercial leads services (which are still a major part of their business). These services evolved because of the industry's non-marketing characteristics: Competitors would wait for jobs to be offered for bid either publicly or in controlled competitions, and then fight to win the work as low bidders. (Suppliers and allied services and industry professionals including architects and engineers, meanwhile, sought earlier information about planned future projects, RFP opportunities, and the like.)

Before the days of the Internet, this type of information was expensive and difficult to gather, so the leads services contracted with local reporters to file the data, which then could be distributed by mail and later electronically to businesses willing to pay the price.

With the Internet's advent, the rules changed somewhat. While some existing and new commercial leads services such McGraw-Hill's Dodge Reports began offering at least part of their services at much more reasonable costs (of course opening the door to many more bidders with the same information), new Internet services appeared inviting consumers to complete brief surveys to obtain quotes for their work. These services certainly took Search Engine Optimization seriously, and therefore "own" top keyword placement for many categories.

Initially these services offered local contractors a truly manageable and reasonably inexpensive source of leads. Pay the fee and you get the opportunity to connect with home owners and small businesses. But the temptation to sell poorly qualified leads to many competing businesses exists; this increases the service's profit at the expense of clients. There is a fine balance here -- and the reputable leads services know the breaking point where the majority of their clients won't pay. They still need to deal with many disgruntled contractors who expect to receive a lead, make a phone call, and then win the job. It (almost) never works that way.

Contractors who are successful with leads services have two things going for them: A really good follow-up and management (sales) system, and reasonably good relationships with the leads service provider, who knows their business is meaningful and important to them. Some smaller contractors also develop relationships with small, locally based leads services, who provide highly qualified leads for a relatively high commission (up to 10 per cent of selling price). These leads, of course are golden -- the challenge is to ensure your pricing allows for satisfactory profits.

On the non-residential side, leads services also are really useful for background knowledge and insights. You can learn who is providing work, what projects are planned, and which suppliers are winning most of the bids. This can be useful in competitive planning and developing your own marketing strategies.

Really successful marketers -- except the few that have truly systematized and set fast acting and highly measurable selling strategies in place -- avoid the leads services as a source of new business. They create their own leads through effective advertising and by encouraging referrals. Some are even able to "beat" the leads services for top placement on the Internet search engines -- outside of time and thinking about how to do this, they find their cost per lead drops to pennies; and the success in conversion is much higher than the commercial services.

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