How Purchased Leads Companies Work

Craig Smith: We have the full range of home improvement, repair, and maintenance services as well as large project professionals, but we skew toward the smaller sole proprietor because our service creates a marketing channel and platform for those types of businesses. The smaller business without the big ad budget has always gravitated to ServiceMagic. You can compete based on ratings and reviews, the quality of your profile, and the fact that you're ServiceMagic approved.

RC: Have you seen an uptick in interest, and numbers, with the recession?

CS: Our enrollment increases year on year. The biggest objection we've always had to overcome is: "I don't need leads, I rely on word of mouth." Given the economy, a couple things have happened. One is that the quantity of jobs has decreased so businesses see the value in what we offer.

RC: Many contractors try a lead-finding service and then abandon it after a few months. Why?

CS: I think there are varying reasons, depending on the business. Internet marketing has changed the paradigm significantly. Before, a contractor might list himself in the Yellow Pages or receive business via referrals. So he's reacting to a lot of inbound leads. With a lead-gen service, there's a responsibility to follow up, present yourself well, and to market your business. Many contractors aren't used to making that proactive follow-up outbound call. In addition, there are varying expectations for different lead types. If you're paying a set amount per lead, results are transparent. It's harder to quantify the return on Yellow Pages or direct-mail advertising. That causes people to evaluate these resources differently.

RC: So follow-up is key?

CS: Businesses need to adapt to a new form of finding customers that's different from what they've done historically. Requests for home improvement services come all across the purchase continuum. So out of the last 10 lead requests, for instance, you may talk to six or seven, schedule appointments with three or four, and actually close one job. It's priced into the model. Out of those 10 there may be someone you didn't make contact with right away that you'll want to continue to market to. For our part, there's the responsibility to refine and improve our matching, our customer expectation setting, and the quality of the lead we deliver.

RC: Who is your competition?

CS: The lion's share of competitive leads go to word of mouth and Yellow Pages. Consumers still look over the fence and say: Who did you use? And contractors still fill their pipeline using that channel. Yellow Pages gets 14 billion inquiries a year, and we estimate 25% of those are in our categories. But more and more use the Internet. And we feel we play a role in that migration shift.

RC: How do you differentiate ServiceMagic from other lead-generation companies?

CS: By committing to top-quality service professionals. Our network is much bigger [than that of competitors] but we are rigorous about the screening up-front and separating the good operators from everybody else. We're also vigilant about policing that network by identifying bad apples. Unfortunately, there are a number of startups that replicated what we do but chose the easy path and don't want to police the network and do the screening.

RC: It seems that Angie's List and lead-finding operations that work strictly local markets have found favor with full-service contractors. What does ServiceMagic plan to do to expand its share of that segment of the remodeling market?

CS: If I'm a high-end remodeler, I want to match to a consumer who's looking toward a style or design approach that I specialize in. So we want to perform a better match within this category specifically by providing great content describing what these professionals do, highlighting their work, and assuring that homeowner that we are matching him or her to the right business.

RC: Are most ServiceMagic inquiries coming from pay-per-click campaigns or optimized websites?

CS: It has diversified over the last year and a half. About half comes from search, either paid or organic placements. Another 25% comes from partnerships, and the remainder from direct log-in. We have a lot more direct type in now because we have done a major offline advertising campaign, and we plan to renew that next year.

RC: Up to now, you've charged on a per-inquiry basis. Would you, or are you, considering changing that model to charge a percentage of the finished job?

CS:: We were originally win-fee and migrated to lead-fee because it became too difficult to administer. This year, for instance, we will receive 5 million customer service requests across our categories. So my intention is to continue with the lead-based model but to create greater transparency around return on investment and performance.

RC: Specialty contractors seem to be far more successful at using lead-generation services than full-service remodeling companies. Why?

CS: My guess would be that if somebody knows exactly what they're looking for and can define that narrowly, they are probably closer to the point of purchase than someone who knows more broadly that they want to remodel.

RC: What are the 10 most popular projects that homeowners contact ServiceMagic about?

CS: It tends to skew toward lower considerations because of the frequency of need. Handyman and maid service always rank toward the top. There's also a seasonal component; HVAC, both heating and cooling, depending on the season. Landscaping. Roofing. It's also tied to the economy. Two years ago we saw a lot more remodeling jobs, whole-house and kitchen or bath remodels. Now we're seeing it skew more toward specific improvements such as refacing cabinets or replacing countertops. Replacement windows have been a constant.

RC: What followup do you do with homeowners who have used a ServiceMagic contractor?

CS: We do a few things. For one thing we're in ongoing e-mail communication throughout the project to determine [the homeowner's] level of satisfaction. We also have homeowners rate their contractor when the job is closed. We have over a half-million ratings and reviews on our businesses today. We also have an outbound phone call four to six days after the request to make sure the homeowner is happy with the professional selected.

RC: How do you respond to a consumer complaint about a contractor obtained through ServiceMagic?

CS: We have a team dedicated to just that. We send out a rating review request. Any review that's three stars or lower we proactively follow up. Most of the time, [the problem is] purely communication.

RC: What kind of vetting process goes into qualifying the companies to which you refer homeowners?

CS: Contractors who sign on for our service go through a 10-point screening process. We want to know if you're licensed, insured, registered with the state. We ask for references and verify them. We run a bankruptcy and liens check as well as a criminal background check on the owner. If you meet the criteria, we go through an in-depth profiling process so we can understand where you like to work and the types of jobs you're looking to do.

RC: What's a short-term goal you'd like to see ServiceMagic implement?

CS: We need to establish ourselves as a trusted, reliable marketplace for homeowners. We plan to do that by creating a ServiceMagic Seal of Approval for contractors who've met our 10-point screening. They can use the Seal of Approval on their letterhead and in their marketing materials to differentiate themselves and win more business. We'll also call attention to this in the advertising we're going to do next year. Ultimately, we're about getting more jobs for the professionals who use our service, and increasing their individual credibility with the homeowner can only enhance that.