How much can you afford to pay for a lead on a big job?

Step 1: Gather four numbers

Pull these from your books and your memory of the last year. Rough is fine; honest is essential.

1. Average contract value. Total value of signed jobs in the last 12 months divided by the number of jobs. If you sell two very different products, such as kitchens and full additions, calculate each separately.
2. Gross margin. What is left after materials, subcontractors and direct labour, as a percentage. Many renovation firms land somewhere between 20% and 35%, but use your own figure.
3. Close rate on serious enquiries. Of the people who were in your area, wanted work you do and were at a size you would quote, how many signed? One in four? One in eight?
4. Acquisition share. The percentage of gross margin you are willing to spend to win a job. This is a business decision, not a formula. Many owners start between 10% and 20%.

Step 2: Do the arithmetic

Here is the calculation for a Woodbridge renovation firm with one main product line.

The formula is: contract value × margin × acquisition share ÷ enquiries per job. In this case, $70,000 × 0.25 × 0.12 ÷ 7 = $300.

Now compare a firm selling $3,500 jobs at 35% margin, a 15% acquisition share and three enquiries per job. Its ceiling is $3,500 × 0.35 × 0.15 ÷ 3, or about $61. Both firms may be bidding on similar searches. Only one of them can afford an aggressive bid, and it is not the one with more jobs.

Step 3: Adjust for a long sales cycle

Large projects close slowly. An enquiry from a Kleinburg family in February may become a signed contract in June. That causes two problems.

First, early months look expensive. If you launch a campaign in March, you will pay for enquiries in March, April and May before many of them sign. Do not judge the campaign on the first 60 days. Set a review point at three months for the pipeline and six months for signed work.

Second, attribution gets fuzzy. The buyer may have found you through a search ad, come back through your Google Business Profile, and finally called after a neighbour mentioned you. To keep it simple, record the first way each enquiry found you and the way they contacted you, and look at both.

A practical habit: keep a simple log with the date of enquiry, source, project type, estimated value, date of site visit, date of quote and outcome. Ten minutes a week keeps it current. After six months it is the most valuable marketing document you own.

Step 4: Split the budget by project type

Most Vaughan contractors sell more than one kind of job, and they rarely have the same ceiling.

Suppose a design-build firm sells kitchens at an average of $45,000 and additions at an average of $160,000, both at 25% margin and a 12% acquisition share. Kitchens close one in six; additions close one in nine.

• Kitchen ceiling: $45,000 × 0.25 × 0.12 ÷ 6 = $225
• Addition ceiling: $160,000 × 0.25 × 0.12 ÷ 9 = about $533

If both run in one ad campaign, the cheaper, faster-converting kitchen searches will soak up the budget and the additions will starve. Separate campaigns, separate pages and separate tracking let each product compete at its own ceiling. This is the structure we use in our Google Ads service.

Step 5: Check capacity before increasing spend

A lead you cannot serve is worse than no lead. Before raising a budget, ask:

• How many more projects can my crews start in the next quarter?
• Do I have a person who will return every enquiry within one business day?
• Can I do site visits within a week of the first call?

If the answer to any of these is no, more marketing will mostly produce frustrated prospects and wasted spend. Sometimes the smarter next investment is an office coordinator, not a bigger ad budget.

Common mistakes

1. Using revenue instead of margin. It makes every lead look affordable and quietly destroys profit.
2. Counting all contacts as leads. Supplier pitches, job applicants and spam can make up a meaningful share of contacts. Strip them out.
3. Comparing cost per click instead of cost per signed job. Cheap clicks that never sign are expensive.
4. Judging too early. A two-week test cannot tell you much about a product with a four-month sales cycle.
5. Letting the cheapest product set the budget. It leads to starving your most profitable work.
6. Ignoring follow-up. If your close rate improves from one in seven to one in five, your ceiling rises by 40% without spending a dollar more on marketing.

Questions to ask any agency

Whether you hire us or someone else, ask these before you sign:

• What maximum cost per serious enquiry are you working to, and how did you calculate it?
• How will you separate my high-value and lower-value services?
• How do you count a lead, and how do you exclude spam and irrelevant contacts?
• Will the ad account and its billing be in my name?
• How will you report on signed jobs, not only on clicks and calls?

A good answer to each is specific and uses your numbers. A vague answer is useful information too.

A one-page worksheet

Copy this and fill it in for each main product you sell:

• Product: ______
• Average contract value: $______
• Gross margin: ______%
• Gross margin per job: $______
• Acquisition share: ______%
• Budget to win one job: $______
• Serious enquiries per signed job: ______
• Maximum cost per serious enquiry: $______
• Jobs my crews can add next quarter: ______
• Serious enquiries needed next quarter: ______
• Monthly budget implied: $______

The last line is simply the enquiries needed, multiplied by your ceiling, divided by three months. It is a starting point, not a rule, and real results will vary from month to month.

Where to go from here

If the numbers suggest you can afford more than you are spending, the pricing page shows what our plans cost and works through a similar example. If they suggest your site is the bottleneck, read our guide to building a project portfolio that sells. For the full list of guides, see the guides page.

We are a marketing and consulting service, not a contractor. If you would like a second pair of eyes on your numbers, call, text or email; the first 30-minute consultation is free for eligible trades businesses.