How to Get More Leads as a Contractor

If you think leads are too expensive to get or you know that if your conversion rate ever drops you’re in trouble. Getting leads is probably not your issue, it’s actually your business model that isn’t letting you afford leads. We know because we just uncovered that issue for 4 different contractors and the fix we suggested immediately fixed those issues. 

If you want to watch the video recap of that, you can do so here: 

Before we get into let’s cover a few terms we’ll use a ton here. Firstly is gross profits/customer, and hopefully you already know exactly what this is but in case you don’t it’s your revenue for 1 customer minus the costs of goods sold (or services). The second term we’ll cover is CAC or Customer Acquisition Cost. 

Now that we have the terms down, let’s get into it. A lot of business owners, especially in the contracting world see that leads are costing them way too much money and it’s cutting into their profits too much. Here is the thing, you need to account for it. The best business model is who’s gross profits/customer are 3-6x>CAC. This means that for every customer they get, they have enough money to service them and go get the next few clients. This leads to explosive growth without needing outside investment. 

The key is to profit >2x CAC. If you’re under 2x you grow ridiculously slowly and if you’re over 3x you’ll grow quicker than ever. Here is a graph showcasing a business at 1.5x CAC (Company B) vs one at 4x CAC (Company A). Again, the ratio we care about is gross profits per customer, to CAC.

You can see how Company A (4x CAC) is expanding at a ridiculous rate. That’s because each customer is directly leading to them getting more. That’s the key. You need to profit more off each customer so you can get the next one.

So how do we profit more? There’s two ways, sell it for more, or sell them more. 

Now if you have this issue, you’re probably thinking “If I raise the price I’m going to lose business because more people will tell me no.” So that’s partially true but it’s not a problem. If you profit more off each client and have a reliable way to bring in more, you can make more money, with less conversions; and sometimes with less revenue even.

Let’s break it down. Company X has a 30% gross profit margin with 90% conversions. Company Y has a 60% gross profit margin with 30% conversions. That’s double the profits with a third of the conversions, which company do you think will make more money at the end of the year? 

We can test that. Let’s say throughout the year we give them 10,000 leads each and their average COGS is $70. Well Company X will get 9,000 customers and end up making $900,000 in revenue. Company Y will get 3,000 customers and make $525,000. 

Obviously Company X wins, right? Not quite, when we calculate the profits, Company Y actually got $315,000 of gross profits while Company X only got $270,000. So which business would you rather have? The one that you have to service 3x the customers to end up making $45,000 less in profits or the one that you worked less and made more money? 

It’s clear that Company Y is actually better, they’re more profitable at the end of the year and they don’t even need to service as many customers to get there, meaning the operations are much simpler and the net margins are going to be much higher. When we account for CAC and other expenses that aren’t COGS, it’s likely that Company X isn’t even profitable while Company Y absolutely is. 

When we put CAC into the equation, Company Y is huge. Company X is likely not meeting the ratio we outlined earlier. So what you can do when you’re Company Y is instead of only being able to get 10,000 leads, is purchase 30,000 leads and now you convert the same number of customers as Company X but you profit double on each one. 

So if you feel like your leads are too expensive and you aren’t accounting for the fact that your gross profits need to be 3-6x your CAC, go back, increase your gross profits per customer, and then try again. A lot of the time a simple price increase will fix all of your issues here. Now you know that gross profits are always more important than conversion rates.