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In the early months of 2012, a shocking new trend emerged in the online advertising war over the search term “water damage”: a single click on a Google AdWords advertisement prompted by a user “googling” this term broke the $500 barrier. The armies engaged in this war were restoration companies located in and around Atlanta, Georgia.The concept that brought these companies to the battlefield was “lead generation”.
Let’s define “lead generation”: lead generation is typically managed by a third party who, through their own paid or organic online marketing efforts, connect an end-user in need of water damage restoration, mold remediation or similar service with a restoration company who has agreed to pay the manager of these efforts per phone call, per appointment or a percentage of the gross revenue the job produces.
We’ll discuss each lead generation price model a little later. Let’s first look at the brief history of online marketing within the restoration industry so that we can better understand what happened that February of 2012.
If you’ve been around the industry for a while, you know that marketing efforts in the restoration industry were usually limited to the phonebook (or, as my kids call it, “kindling”). But something very special happened in October of 2000: a three year old idea that had morphed into a two year old tech company called “Google” launched a product called “AdWords“. Google AdWords changed everything. Where Lycos, AOL, and a dozen other search engines failed to gain traction in user-initiated searches for service providers, Google dominated. Google made online search simple for those searching and simple (as well as inexpensive) for those wanting to be found. Before long, Google accomplished want all brands strive for: they had become a verb.
But as often is the case in niche service industries, we were slow to adopt the new Google trend. Yes, there were exceptions: some franchise systems grew overnight because of their ability to generate leads for their franchisees. Some of you built websites and spent hours (days/weeks/months) learning how to create your own ads on Google. I’ve argued before why restoration companies should always be marketing their services, drawing insureds directly to them, and those who made this effort saw success. By and large, though, our industry didn’t find its way online — let alone into Google ad space — until the last few years. And the companies who were responsible for getting retailers, pharmaceutical companies, law offices and the rest of American commerce online took note.
Here we were, a profitable and booming service-based industry, desperate for our next lead — our next water damage. We needed to get online. We needed to make our phone ring. And the online, paid advertising companies who had paid attention to us — the Lead Generators — were the ones who came to our aid.
For the uninitiated, there are three paths to Google’s first page: paid advertising, organic results, and local listings. Let’s work in reverse order: local listings (referred to as Google Places or Google Local) is the simplest way for real companies to obtain a first page rank. It’s also completely free. [You’ll find a link in the Resources section that walks you through setting up a local listing for your business. If you haven’t done so already, I strongly recommend it. When a client has experienced an emergency in their home or business, they’ll often look in this section to find the company closest to them]. Ironically, Lead Generators often avoid local listings as they are very difficult a fake. This is yet another reason why you should make the effort to occupy one of these listings with your very real business.
The second path leads to the organic search results (the area below the paid ads) and comes by way of Search Engine Optimization (SEO). Organic ranking, while “free”, often takes several months — even years — to achieve. The better the SEO techniques used, the higher the pagerank. Result #1 on Page #1 is the Holy Grail of SEO efforts. [In the Resources section below you’ll find links to sites and blog posts that I‘ve found helpful in my own SEO efforts; if you plan on managing your own SEO efforts for your site, prepare to spend a lot of time doing so; the payoff is worth it, but the journey is long and treacherous; if you plan to outsource this, hire an SEO company who knows our industry and one that can provide case studies from other restoration clients showing the arch of launch, page-one placement and ROI].
The final path also happens to be the most expensive and the fastest: paid advertising [Google’s product for managing paid advertising is called AdWords; the method is generally referred to as Pay-Per-Click]. But just because you pay to advertise with Google doesn’t mean your ads will show on Google’s first page. Within a desktop search, Google typically shows 10-12 ads [Update: as of 2/22/2016, Google now shows only 7 ads]. There are dozens of variables that determine where and when your ad will be shown to a client who has searched for a term you’ve bid on. In addition to this, your competitors are also vying for these first page placements. Good AdWords managers know how to optimize campaigns and budgets to keep their ads on Page 1. In my experience, I can count on new ads I’ve created showing in the #1 or #2 spots within a few days of activation.
Lead Generators needed instant results that could be replicated over a vast client base: paid ads fit these needs perfectly. But there’s one problem: Google’s AdWords program is an auction. As more buyers enter the auction, it becomes more competitive and bids are driven up. Google doesn’t make information about specific auctions public, but analyzing the results of the daily Google auctions in February 2012, I can safely conclude that Lead Generator’s got greedy. By selling their services to multiple companies within the same city (and auction) the Lead Generators so inflated a single term — “water damage” — that the result were clicks costing more than $500 a piece (referred to as Cost Per Click or CPC). The Lead Generators had loaded their own auction. Two years later, the term “water damage” in Atlanta still hovers around the $120-mark for a single click. This effect, however, is larger in scale than Atlanta. It has defined the current tactics used by Lead Generators and has determined what restoration leads are “worth”.
To avoid similar disasters such as the Atlanta auction, Lead Generators have turned to two strategies: SEO efforts that produce organic results and tightly tailored territories for paid advertisements.
Because Lead Generators were footing the Google bill for paid ads (which you pay for in the form of higher per-lead costs) and because they now understood the lunacy of entering into a city-defined auction on behalf of multiple Restorers, many Lead Generators have turned to SEO.
Here’s how it works: the Lead Generator creates a very generic site. They then create landing pages for each state and sub-pages for each city — equating to thousands of pages. If you’re a client of this Lead Generator, your service area will determine which and how many of these pages direct clients to you (through your direct phone number or a forwarding number). If these sites are organized, maintained well, and updated regularly, over time they may begin showing (or ranking) on Google’s first page. So if the Lead Generator you are contracted with manages to work your page or pages to Google’s first page of search results, you’ll pay (in one way or another) if this customer calls.
You might be asking yourself why I’m insinuating that this is a bad thing. Inherently, its not. These Lead Generators are able to do something many of you can’t (rank organically on Page 1). And because of this, you occasionally get a lead you wouldn’t have normally gotten. But I’d like you to think about these things:
— not your website. Chances are, you will, at some point, stop doing business with this Lead Generator. Once you go, the Lead Generator will point your former web pages to the next guy. You’ve accomplished nothing toward your brand development goals.
Switching gears, let’s examine Lead Generators who still use paid advertising. As mentioned before, these Lead Generators are paying for each click. These clicks can (and do) amount to thousands of dollars each month in expense. Because of this, these lead generators have to pack as many restorers into the same target area — a county, city or region. They will no longer pit Restorers against one another in the auction for search terms. They will instead manage one set of campaigns within an area and sell you these leads on a rotation basis or through a tiered system. In some cases, the more you’re willing to pay per lead, the more leads you’ll get; pay less per lead and you’ll have to wait until your competitor wants to spend the rest of the month on the golf course.
I see five problems here:
Atlanta may have been our “Gettysburg”. It was certainly a turning point in our industry’s advertising strategies. Unfortunately, though, this war is still raging. It has moved beyond Atlanta and beyond paid advertising. In nearly every city in the US nearly every result on Google’s first few pages is occupied by a Lead Generator (Google Local/Places notwithstanding; these tend to be occupied by real companies). If you’ve taken the time and invested in a website for your own company, chances are it’s buried deep within the badlands of Google Search. Put another way, clients searching for “water damage” repair services often won’t find you. Your SEO isn’t as good as the Lead Generator’s SEO.
I imagine that some of you — perhaps even the majority of you — are okay with the tiny territories or the rotation-based models Lead Generators offer. Perhaps you work to brand your company in other ways, so the Lead Generator representing their own “brand” over yours is acceptable. And I’m certain some of you don’t believe I’m being fair when I say that the majority of Lead Generators — though not all — practice a degree of deception in their marketing efforts. But let’s talk about your wallet for a moment.
I mentioned earlier the three most popular lead generation pricing models (percentage based, per call and per appointment). The rates for the per call and per appointment models increased dramatically following Atlanta. The Lead Generators had increased internal expenses so much that they had no other option than to increase your rates. This in turn affected the pricing bar for both leads the Lead Generators gained through AdWords and the ones they generated through organic results. Put another way, what you pay today for leads is determined by an average of your market’s per-click costs for paid ads. And as the CPC of these terms increase, so will your per-lead rate. The really bad news: Google’s current, maximum CPC is $1000. If today, you pay between $200-600 per lead while your Lead Generator pays between $30-150 per click, what will you pay if/when these clicks reach $200? Or, like in Atlanta, $500? Or $1000? Will you still be able to afford third-party lead generation?
For those of you paying Lead Generators based on a percentage of the job’s revenue, the scenario above will affect you as well. As CPC increases and Lead Generators are forced to raise their per lead rates, the lead generation market will move to a percentage-based model. Why? We — the Restoration Industry — will demand it. And while more competition amongst percentage-based Lead Generators may temporarily make lead-pricing more competitive, the market’s demand for leads will only increase, driving percentages higher. If you pay 15% today, this number could easily double in this scenario.
Focusing on current percentage rates, however, I’ve got to challenge the concept of paying someone a 15, 20 or 25% fee for making the phone ring. At 15%, you’re already paying nearly double what many restoration franchisees pay their franchisor. At 20%, you’re paying nearly triple. How much is too much?
Some time ago I met a young manager of a small but very successful, privately-owned, multi-unit restoration company. As we talked shop, I pressed him for numbers. I knew of their company and was impressed with their reputation, but I was eager for facts. “We brought in just under $6,000,000 last year,” the manager told me. Having been a fisherman most of my life, I am accustomed to “slight exaggerations” of the length and weight of a fisherman’s catch when he recalls the battle to subdue the creature. Having been in the restoration business for most of my professional life, I am also accustomed to slight exaggerations when it comes to a Restorer’s annual revenue. But then I asked this manager how he generated leads. “Plumbers,” he responded.
“$6,000,000 from plumbers?” I asked, clearly shocked.
“35-40% of our annual revenue goes to referral fees.” This was said in all seriousness and with an air of pride and accomplishment. He wasn’t lying — about his revenue or his referral fee payouts — because who would lie about giving away nearly half of their annual revenue?
While this story might sound incredible or like something you might hear a fisherman tell, I share it with you as an example of the point at which it’s too much — of when you’ve found yourself in a Pyrrhic victory.
In my own business, I analyze key business decisions by asking three questions: Is it good for my client? Is it good for their clients? Is this good for our industry? If I can answer “Yes,” to each of these questions, I’ve answered my Bonus Question: It is good for me.
In addition to these questions, I encourage you to ask yourself:
Then consider the alternatives to Lead Generation:
SEO – DIY
SEO – Companies