Create A Marketing Budget That Scales Your Home Service Business

Contractors and home service business owners are working harder than ever before, yet their revenue's probably staying within the same range or even getting worse than it probably was the last couple years. And one of the biggest questions that I get and I hear all the time is, what should I be spending on my ads? What should my marketing budget be? So this is gonna be the bulletproof 5-step process that we use with our own businesses, with our clients' businesses to make sure you know exactly what to budget for to accomplish your goals. Let's dive in. So when it comes to actually creating and setting a marketing budget, the first thing we have to realize is that we're not budgeting for anything. What we want to do is change the way we think about marketing, change the way we think about advertising, and it shouldn't be an expense. If your marketing is an expense right now and you're thinking of ways of how can I cut my marketing, that's usually a result of 2 main problems. Number one, you have someone like an accountant who's looking at your finances, who's not running your business, doesn't even understand anything, and he's telling you what you should be spending on your ads, on your marketing budget. That's a serious problem. Number 2, another one of the big problems that we see is that you're not tracking anything. So you actually don't know what your marketing is doing for you. You don't know what your average cost per lead should be, what your average cost per click is on your ads, what ultimately your customer acquisition cost is, what your dollar per lead should be. And ultimately, if you have a revenue goal that you're trying to accomplish, you have no way to reverse engineer that process. So I want to walk you through how to think about this differently so you can actually grow and scale your business. Now, the first thing we're gonna talk about here is First things, how to ask the right questions. Number 2, I want to show you the real math of what your marketing, your return on your investment should be or could be with your advertising, and ultimately give you a free tool so you can calculate this for your business in your local area. And then number 3, I want to give you a plan to win so you can actually implement this and get results, because ultimately knowledge without implementation is nothing. So let's move on. So Here's a trap I think most contractors and home service business owners are in. They're thinking of ways to save as much money as possible. And ultimately, you can't save your way to 7 figures. You can't save your way to 8 figures. For you to be able to really scale a business, any business, especially one that is as competitive as being a contractor or a home service business, you have to understand how to invest your dollars responsibly. So if you're saving and constantly cutting your marketing budget, Okay. Ultimately, those that are willing to spend, that are tracking every dollar will outbid you. They'll be able to actually outspend you. And before long, they will be the go-to household name in the market and you will be out of business. So ultimately our goal is to not spend more than we should. Our goal is not to spend less than we should. It's to find that perfect number for you and for your goals and for your area. So let's start with the first thing I want to talk about here, which is most people, when they come to come up with a marketing budget, they think to themselves, what's the percentage of revenue that I should be spending? So they think about, Okay, well, what did I generate last month? Or what did I generate last year? Or this is my favorite, okay? At the beginning of the next fiscal year, they determine their marketing budget for the entire year. That is such a flawed way of thinking about it because if you're tracking every single dollar in real time and you know what is working for you and what's not working for you, you should be actively scaling your budget as long as you're generating results, and you should be cutting your budget in real time as long as it's not generating you results. So ultimately, the percent of revenue is the wrong Wrong question to be asking. I want you to instead think of what I call the winning mindset, right? If percentage of revenue is the losing mindset, the winning mindset would be: What does my revenue goal require? If I'm doing $100,000 a month right now, that's my average revenue over the last six months, and I want to find a way to get to $200,000 in revenue. How much in advertising dollars and budget do I need to spend? Where does it need to be allocated for me to be able to actually acquire the leads trackably? To be able to then go and actually generate that additional revenue. So ultimately, this is where we get to the place of spending what's required and then being able to actually commit to it. One other thing I want you to realize here why this is so important is because your real competitors aren't local for the most part. There are a ton. There's been a ton of consolidation in the last few years in the contractor construction home services businesses, and ultimately what ends up happening is you're competing against. Lead aggregators, number one, places like Angie, HomeAdvisor, Yelp, Thumbtack, Nextdoor, Porch, and more. What they're doing is they're spending and blowing national budgets with zero emotion. They've raised a ton of private equity money, and their job is just to spend and flood the market as much as they possibly can. This is a major problem because we are going to be competing with them. The other thing to consider here is that you have national brands and franchises, companies like Renewal by Andersen, LeafFilter, Re-Bath, Power Home Remodeling. These are billion-dollar companies now. They're operators that are thinking about just scale, scale, scale, scale, scale. They're leaving profitability behind. And even worse, they're actually increasing their pricing probably more than what you're charging and are baking in the advertising costs into their jobs. So they're able to spend more money, but they're able to charge more money because people are simply seeing their brands and their names way more than yours and your competitors. So your real competitors in this scenario aren't really local. And in fact, if you don't have a large private equity type competitor or like a lead aggregator that's super dominant in your area or industry, you might be able to continue to get away with word of mouth. But mark my words, it will only be a matter of time before you will get outbid in the marketplace and pushed out if you don't learn how to actually implement this strategy. So here's how these platforms actually work. Let's just take these lead aggregators platforms. And a lot of times you think to yourself, well, I just need to get more leads. I should just go and, you know, would go off of an Angie's or, you know, purchase some things off of, off of Thumbtack. Sure, you can do that. But if that becomes your only lead generation marketing strategy, ultimately it's a race to the bottom. You're going to be forced to compete on price. You're going to get the same leads sent to you and 10 other contractors, and it's going to become a massive race to the bottom where you'd have to just outbid them completely and you have to be following up with them 10 times more aggressively than you really want to. You're going to buy the leads, pay monthly to be listed on their platforms. They're going to run ads. So your money is going to fund all of their national ads, all of their SEO. You're essentially paying to build their brand in real time. And ultimately they're reselling that lead back to you. You, the homeowner, even if they don't say, well, you're going to get exclusive leads, the reality is, is that you're not really getting exclusive leads at all because you're building their brand. The homeowner is seeing their platform and their ads. And typically that homeowner could go through that same process multiple times and get sent to multiple different people. Their brand is growing and yours is not. No one knows who you are. No one knows what your name is. And ultimately, you're gonna be in a position where long-term, just no one's gonna know you even exist. One of the things I've realized, generating business and, and really growing and scaling a, a local business has nothing to do with the quality of service you provide. That is important to an extent, but it's about being the best marketed in your area. And you've probably seen that, you know, holy cow, there's these new kids popping up on the block. They're taking all my jobs. I might've been in business for 20, 30 years. You know, why does no one wanna go and work with me? Well, it's because no one knows you exist. So it's about number one, yes, you got to provide a quality service. You got to be good at what you do for sure. But it's really more so about being the best marketed contractor or home service business in your area. You should be building your brand. If you're going to be investing marketing dollars and having an ad budget, you should be building your brand, not somebody else's. So now that we've decided and established that you need to be spending your own money on your own lead generation to build your own brand, well, this is where the marketing budget question comes to be. Well, Tanner, what should I be spending on my budget? Well, ultimately, for you to know what that looks like, you have to have your goals clear, and you need to be able to actually reverse engineer the entire process so that you know what it costs to acquire a customer. And ultimately, if I know I got to generate, you know, 5 more customers every single month, more than I'm doing, um, for me to be able to hit my goals, I just got to solve that math problem. That's it. All this is is a math equation. And then we've got to go and actually track every single dollar in our marketing so we can actually see if it's you know, if we're gonna accomplish our result or not. So I'm gonna walk you through a tool that we use to come up with a crystal clear roadmap of what your marketing budget should be and ultimately how you can test your marketing against it at all times to know which parts of your funnel or process or system or sales need to be improved. So let's just dive into this calculator. And by the way, if you wanna get the link to this calculator so you can actually go through in real time and see every single thing, what it looks like for your business, it'll be linked in the description below. So let's just do some simple math. Simple math here. Let's say that we're a roofer. Let's see our average job value here is $12,000. Let's say that you know we'll come back to monthly ad spend. Let's just say it's going to be $1,500 for now. Our average cost per lead in roofing—it's more expensive than sixty. Let's say it's going to be $150 cost per lead. Oh, let's go down one bullet. And then our contact rate here—this is an interesting one. I would say that on average, our customers and clients are seeing about a 60 to 70% contact rate. That means for every 10 appointments and leads that you generate, you're actually getting 3 of those people that disappear off the face of the planet, meaning they— you never hear from them ever again. They just disappear. Okay, it's pretty standard. So in this scenario, if our, if our contact rate is actually 60%, that means 4 out of the 10 appointments we book You're never going to hear from them again. And then ultimately, our estimated set rate is of the 6 in this scenario that we actually contacted and talked to, we're going to set about 60% of them. So let's actually bring this down and be a little bit more conservative. Yeah, we do see about a 60 to 70% set rate in most markets, but let's just be conservative here with 50%. Now, here's the big one. I see contractors all the time. They're saying, hey, my close rate's 80%. Yeah, it's probably 80% on word of mouth referrals. But if you're operating a business off of word of mouth, You're never going to be successful and scale. And honestly, you're gonna be stressed out the whole time because if you don't know where your next lead and your next customer is coming from, then ultimately you don't have a business. You're just kind of operating off of other people growing your business. So I'm going to set the close rate here to 25%. That means in this scenario here, we generate a lead for $150. Our contact rate was 60%. Of the 60% we talked to, AKA 6 people, we set 3 of them. Of the 3, okay, it's going to be 25% close. And let's just say our gross margin is about 40%. Now I know a lot of roofers, they're a little bit higher. They could be up in the 50% range, right? We're just going to keep it 40%. So you can see in this scenario, your estimated profit per month is going to be $4,500. Your breakeven is going to be 0.2 signed jobs. And this Honestly, at $1,500 in monthly spend, you would add an extra $180K in revenue and estimated $15,000 a month, and you'd actually make about— what is that? $4,500 a month in profit. Now, this is where it gets exciting, right? Let's just say our monthly ad spend goes from $1,500, I don't know, all the way up to $3,000. Let's just double it. Keeping all things the same, okay, we actually go from $4,500 to $9,000 a month in profit. Literally, would you spend $3,000 in ads knowing you could generate $9,000 in profit? The answer is yes. But this is where you can actually see in real time how aggressive you can go. Let's just say that our cost per lead isn't $150. Let's say it's, I don't know, $250. So let's just go all the way up to $250 here. Would you spend $3,000 if you could actually predictably and scalably generate another $4,200 in profit per month? The answer for my business is yes. I'd be adding an extra $216,000 in estimated yearly revenue. I'd get a 6x ROAS or 6x return on my investment. And ultimately, I'd be able to not just scale my ad spend, and cover and subsidize my expense, but I'm actually going to be profitable the whole time doing it. So this is one of the things that, you know, is really cool about spending money because also in this scenario, these 40% of leads that I'm contacting, where are they going? Well, you're, you have them in your database. You're going to be emailing them. You can retarget them. There's a lot of ways for you to reactivate them and over time get them to become appointments. Of these, you know, people you contacted, So in this scenario, 6 appointments out of 10 you contacted, you weren't able to set 3 of them. What happens to them? Well, you contacted them, you had a great conversation. Chances are it just was bad timing. Those people are going to need a new roof eventually. So they're the perfect people to keep in your database, continue to advertise to them, and ultimately they can turn into customers down the road as well. Of the people that you actually pitched and set an in-home consultation or appointment, Okay, you close 25% of them. What happens to the other 75%? Well, that's bottom of funnel, the most warm, aggressive people that will probably come back to you down the road. So even in this scenario, we're closing, you know, a 60% contact rate, 50% set rate, 25% close rate. We're still profitable by a wide margin. But what we're doing is simultaneously growing and building our brand. This also doesn't account for the tens of thousands of eyeballs That actually saw your business and your logo and your, and your slogan and your trucks and maybe your face all over social media. This is really, really powerful stuff. So ultimately, I'll give you this link, go play around with it, but hopefully this can show you maybe where you're not spending or where you should be spending to be able to accomplish your goals. Another thing here, let's say you want to go, I don't know, generate an extra million dollars. Let's just see in this scenario what we've got to spend monthly. We've got to go here and we got to be willing to spend An extra $13,900 a month in advertising spend to generate another million dollars in revenue would be another $83,000 a month. Would you do that if you could predictably track that? I mean, most business owners would say yes. Now, this is another secret and tactic I'm gonna give you to help you to get to the point where you can afford to spend more money on your advertising and get a little bit more wiggle room as you go to spend and acquire customers. And that is to try to bake your marketing into every estimate. Going back to this example and scenario using the profit calculator, we're going to have a customer acquisition cost expectation or assumption. If we're expecting to be spending, I don't know, $1,000 or $2,000 to acquire a customer, one of the things that we can do is simply just add that cost into your price. And what you will typically see is, number one, if you're having to compete on price and lower your prices more than everybody else in your area, Well, that's a problem. Great marketing and advertising where people are seeing you, getting to know your face, your message is going to be a way for you to overcome that. But another thing is maybe you don't put your whole customer acquisition cost into your estimate and into your project, but even putting, I don't know, 25% or 50% of your customer acquisition cost into your job will help you to get that much more back in revenue. So ultimately I want you to add up Your materials, your labor, your overhead, your profit figure, exactly where you're at, what your gross margin is. And then once you factor in marketing, maybe just try to start playing around with adding that in and slowly increasing your prices. Another thing to consider is as you increase your prices, you have to get better at selling on a separate type of a unique selling proposition. If your whole value is we're cheaper than the next guy, well, you're going to continue to create a downward spiral and simply attract people that you really don't want to be working with. They're going to be tougher clients. They have more chargebacks. They're going to, you know, not pay you as well. And if you can get to the place of just being a better marketer, thinking about how to create separation from everybody else in your market, this is how you're going to help yourself do that. And one thing here too, you know, one of the reasons why it works is think about a high-ticket job, maybe a bathroom remodel, kitchen remodel, basement build-out. Homeowners that are going to pay that type of premium, for some sort of project at their house, they're really looking for the right partner. And if you really know what you're doing and you're a great operator, okay, adding an extra $2,000, $4,000, $5,000 into the project isn't the end of the world if you're great at actually delivering that service. Now, if you're just starting out, you don't know what you're doing, you are just trying to get some quick wins and some, some clients, then this might not be the best strategy for you. But if you're a seasoned operator, this is one of the things that I recommend you can do immediately is just simply help bake in your marketing costs into every single estimate you do. Now, the next thing I want to talk about here is follow-through. Um, you know, where it gets tough with marketing is sometimes the sales cycle, it's not immediate right now. I do a lot of e-commerce advertising. It's a little bit different because when you get a click, get somebody to a website and they make a purchase for, I don't know, a t-shirt. Okay. It's immediate. You can track that sales cycle from first click to purchase. Really easily. When it comes to home services and contracting, it's not exactly like that. Now, the one thing you got to do though is give yourself enough runway to really see the fruits of your advertising, your marketing, and be committed to it before you just decide to stop it altogether. And that's one of the biggest challenges I see is these guys will start spending $10,000, $15,000 a month going crazy, only to then not see any results for 2 to 3 months and then turn everything off. Okay. Start, stop, start, stop is going to keep you in last place. It'd be way better, you know, the old, old saying is a hare, tortoise and the hare, slow and steady wins the race here. We want to start as aggressive as we possibly can, but be, but be smart and be good stewards over this budget, tracking and scaling up as we go. So don't pull back 2 to 3 months in before it compounds. Be willing to commit to this, track it, and be disciplined enough to see the full results all the way through. So here are 5 takeaways right now for you to start asking the right questions, determine the proper budget for your goals, and ultimately start getting results faster. Number 1, ask, what does my goal require? Not what percentage of revenue should I be spending on my advertising? Number 2, stop funding aggregators, places like Angie's, Thumbtack, HomeAdvisor. Build your own brand. Have the audacity to go out, put your face out in the marketplace, and invest into building your business. Number 3, Run your market's math. What's my click cost? What's my lead cost? What's my customer acquisition cost goal? What's my average job size? And use the calculator that I've provided you to be able to come up with a real strategy that you and your team can be held accountable to. Number 4, calculate your CAC and bake it into every estimate. If it's something that you're, you know, already doing as an operator, you've already got momentum and traction. If you're someone who's just starting out, probably not the best fit for you, but either way, it can help you get a little bit of a competitive advantage. Number 5, Commit to goal-based budgeting and track it every single month. Don't set an annual budget like I talked about where it's like, okay, well, last year we spent $100,000 on marketing and, you know, this year I think it should just be $120,000 and then expect to double or triple the business. It doesn't work like that. You should be tracking every single day, every single month, every single week, and then making data-driven decisions based off of that. For example, if you're putting $1 into your advertising machine right now and getting $10 back, are you going to stay at your goal you set 9 months ago? No. You shouldn't be, especially if you and your team have the bandwidth to scale. Now, here are five more things I want you to consider, and these are questions you should be asking to your marketing partner because I'm making a lot of assumptions here. Yes, this is how we think about you know our marketing budget decisions and how we help our clients and ourselves actually generate results. But you have to be able to really work with somebody that you know, like, and trust, and that's going to think in your best interest. And a lot of times, as home service business owners and contractors, you just don't know what you don't know. So here are five questions that you should ask to any marketing partner. so that they can help you stay accountable and they can actually generate you the results you're looking for as it relates to your marketing budget. Number 1, what will my cost per lead and CAC look like in my market? And how did you get those numbers? Number 2, what specifically is happening in the first 30, 60, 90 days in terms of setting the budget, tracking the budget, and then either adjusting that budget up or down based on the performance results that you're seeing? Number 3, How are you tracking leads all the way to revenue, not just clicks? A lot of times there are people that are just tracking vanity metrics. Oh, look how many likes we got on this post, or look how many views or impressions we got. Okay, eyeballs and followers do not equal dollars. I want to know exactly, as a, as an operator myself, if somebody's tracking my advertising, how are they tracking leads all the way from the first click into revenue? So number 4, a great question to ask is, what are you accountable for? And how will I see it every month? And number five, if there is a contract, a lot of agencies will have one. Why does your contract length make sense for my goals? These are five things that you can ask. Show this video to your team, your marketing agency, but on top of it, have them answer these questions. If they can't do it, run for the hills. Congrats on making it to the end. I hope you found this video useful. Now, if you are a home service operator or a contractor looking to scale your business and really understand how to generate more leads, do so predictably and scale. Then here's my offer to you. Join my school community. It's completely free. It's called Scale to 7. Inside of the community, you're gonna find things that I talk about like this training. You're gonna find a bunch of business owners on the exact same path that you're on. And then lastly, I'm gonna give you the Contractor's Blueprint. Literally, it's a step-by-step process of everything from building a website, generating leads, getting reviews, understanding how to run Facebook ads, Google advertising, ultimately become the go-to household brand and name in your local area and dominate your market. If that sounds interesting, click the link. I'll put it in the description as well. Uh, can't wait to see you on the inside. And by the way, like, subscribe to the video, come back to the channel for more. I'll see you on the next one.