"Only forty dollars a lead" is a sentence about the seller's price. It says nothing about your cost per customer, and that is the number that decides whether buying leads is worth it. Divide the price of a lead by the share of leads you actually reach, and again by the share of those who sign, and you have your real cost of one new customer.
Bought leads are worth it when that cost is comfortably below the profit on the first job. They are not when it isn't, however cheap each lead looks. The rest of this page is the calculation in four inputs, two worked examples with the arithmetic shown, and a cheap way to test before you commit. It names no vendors, because the formula works the same on all of them.
What bought leads are
A bought lead is a contact someone sells you: a person who filled in a form asking for a quote, a name from a list, or a phone call transferred to you. The price is per lead, whether or not you ever reach them or they ever buy. Some are shared, sent to several businesses at once, and some are exclusive, sold to you alone. Exclusive ones cost more. Our piece on how much a lead costs covers typical ranges, and lead generation companies for small businesses explains how those sellers work.
The four numbers that decide
Write these down before you spend anything.
- Price per lead. What you pay for each lead, including any minimum monthly spend divided by the leads you actually get.
- Contact rate. The share of leads you manage to talk to. Disconnected numbers, fake forms and people who never pick up all reduce it.
- Close rate. Of the leads you reach, the share who sign.
- Job profit. What is left from the first job after materials and labor, not the invoice total. This is the number people inflate.
Cost per customer is the price divided by (contact rate times close rate). The most you can pay per lead is job profit times contact rate times close rate. Anything above that loses money.
Two costs hide outside the four numbers: minimums and your time. A $300 monthly minimum that delivers 12 leads is $25 a lead, whatever the price sheet says. And 100 leads at ten minutes of calling and texting each is almost 17 hours of your month. Add both to price per lead before you divide.
A worked example that loses money
Kilmer Home Cleaning buys shared leads at $40 each. A typical first job is $1,200 with a 40 percent margin, so $480 profit. Of 100 leads, about half (50) pick up. Of those, 10 percent sign, so 5 customers. Cost per customer is $40 divided by (0.5 times 0.10), which is $800.
Check it the long way. One hundred leads cost $4,000. Five customers produce $2,400 in profit ($480 each). The net is a loss of $1,600. The most Kilmer could pay per lead at these rates is $480 times 0.5 times 0.10, which is $24. At $40 the leads are $16 over the line.
A worked example that earns
Now Kilmer buys exclusive leads from its own service area at $15 each, from a source that lets it filter by ZIP code and job type. Say 60 percent of them pick up and 15 percent of those sign. Cost per customer is $15 divided by (0.6 times 0.15, which is 0.09), or about $167. The same $480 job profit now leaves $313 per customer.
One hundred leads cost $1,500. They produce 9 customers, $4,320 in profit, and a net gain of $2,820. The maximum price Kilmer could pay is $480 times 0.09, which is $43.20, so $15 has plenty of room. These numbers are invented to show how the formula moves, not typical results. The point is that the cheaper lead was the better buy, and you couldn't have told from the price tag.
Shared versus exclusive leads
Shared leads are cheaper because several businesses call the same person, which pulls the close rate down. Exclusive leads cost more because you are the only caller. Compare them with the formula, not the price. Say contact rate is 55 percent for both. A shared lead at $20 with a 6 percent close rate costs $20 divided by (0.55 times 0.06), or about $606 per customer. An exclusive lead at $45 with a 20 percent close rate costs $45 divided by (0.55 times 0.20), or about $409. The exclusive lead is more than twice the price and about a third cheaper per customer. It could be the other way around in your trade, which is why you measure.
Ask any seller how and when each person agreed to be contacted by businesses like yours, and keep the answer. Calling or texting people who never agreed to be contacted creates legal risk that lands on you, not the seller.
Test with $200 first
Spend $200, not $2,000. At $40 a lead that buys 5, which is too few to learn anything about close rates. At $15 it buys 13. What a small test can teach you: whether the leads are real, what share you reach, and how fast the seller replaces bad ones. What it can't teach you is a close rate, because 13 leads give maybe 7 conversations, and 1 or 2 signings is noise. Plan on 30 reached leads before you trust a close rate.
While you test, call every lead within five minutes, log each one in a sheet with a column for reached, signed and job profit, and ask the seller for credit on disconnected numbers and duplicates. The piece on how many leads you need to get a customer helps you set expectations.
When to stop buying
Stop when your cost per customer, measured over at least 30 reached leads, is above your job profit. Pause and renegotiate when it is above half of it, because callbacks and warranty work eat into first-job profit. Also stop when the contact rate keeps falling, which usually means the seller is recycling its list. A customer's worth over time can justify a higher price, and what is customer lifetime value shows how to count it honestly.
Buying is not the only way to get names. You can build a list yourself, as in building a list without buying one, and the people on it are ones you chose. Rocketship finds buyers by name, emails them from your own Gmail, follows up, and books the meeting on its own. Launch includes 50 leads a month, and you read the first 25 by name before you commit. Warm leads versus cold leads explains why a raised hand and a chosen name behave differently. Plans that get you customers start at $24.99 a month (Launch), and every monthly plan starts with a 7-day free trial, card required.