Cyber Leads

Not too long ago, Internet referral and lead-generation services looked like a bold new world for remodeling. But as with all things Internet, there has been a big shakeout during the past two years. Some companies have folded; healthier competitors ha...

February 28, 2002


Not too long ago, Internet referral and lead-generation services looked like a bold new world for remodeling. But as with all things Internet, there has been a big shakeout during the past two years. Some companies have folded; healthier competitors have absorbed others. was folded into, for example. itself is in crisis after admitting it over-stated its revenue for the first three quarters of 2001 by as much as $95 million. Searching for a remodeler on now takes a user to ServiceMagic.


Related Information
Internet referral services

Confused? YouÆre not alone. Now that dot-com mania has subsided, what services do Internet remodeling referral companies actually offer? More important, are they any good at it?

Unfortunately, the answer seems to depend on whom you ask. The companies, of course, are avid proponents of their services. Contractors offer mixed reviews.

Only a handful of national companies offering cyber leads remain, with many more regional and local sites providing similar services. Among the biggest, best-known players are ServiceMagic, ImproveNet, and The Home Service Store. Their combined annual sales exceed $2 billion, and they generate nearly a million leads per year for all kinds of home-related services, ranging from housecleaning to whole-house renovations.

ServiceMagic alone processes more than 500,000 leads each year that equate to about $2 billion in consumer spending, says Brady Foster, the companyÆs public relations manager. ServiceMagicÆs 10,000 contractors include about 3,500 remodelers.

ImproveNet provides about 10,000 leads each month to 30,000 contractors and is getting more involved in installed sales through a pilot program at 15 Home Depot stores in California. averages about 120,000 directory searches monthly, of which about 9% become job leads, says president Kurt Reuss. He estimates that 15% of those leads, or 1,620 each month, become jobs. At $1,200 for an average job size, thatÆs about $1.9 million of business each month. shares some re-sources with ImproveNet; for example, homeowners searching for a contractor through may be asked if they want their projects insured by ImproveNet and told that they "may expect to be contacted by [their] ImproveNet Personal Project Advisor in a matter of days."

The Home Service StoreÆs partnerships provide their largest source of leads, says Mike Turner, CGR, vice president of affiliate networks. Often this means doing installed sales for retailers, including SamÆs Club and True Value Hardware. "We get $40 million in sales from SamÆs Clubs alone," says Steve Sempell, vice president of affinity relationships.

Smorgasbord of services

These services represent a variety of approaches to connecting contractors and homeowners. Some provide bare-bones project descriptions to carefully screened contractor members and then refer the first three or four contractors expressing interest in the job to the homeowner and almost simultaneously e-mail the contractorsÆ names to the prospective client. Others are basically directories of contractors who pay to have their names listed, leaving actual selection to the homeowner and offering little more than the old Yellow Pages approach, albeit a less expensive option than a phone-book ad. A significant part of business comes from installed sales or service arrangements with retailers.

Contractors who use leads provided by these services pay for them in different ways, depending on the service. Some pay by the lead only; others pay an additional fee if the lead turns into a sale. In some cases, the contractors pay an annual membership fee to belong to the service. (The same is true for home-owner members of some services.)

Value-added offerings from the Internet companies include e-mail services, Web sites and partnerships with manufacturers., essentially a directory of 9,000 contractors, including 2,000 remodelers, includes ratings from past customers on contractorsÆ Web profile pages.

Unlike most Internet referral services, The Home Service Store directs any inquiry for service to one appropriate contractor in the area. It also handles accounts receivable and payable for the contractor and homeowner, acting as a liaison between the two parties and arbitrating disagreements if necessary.

The links to the Web sites of contractors through, though, seem to be of marginal value, says Mark Markham, owner of Markham Home Improvement in Long Grove, Ill. "IÆve hardly had any referrals from, and IÆve never gone on a call from one," he reports. "IÆve been very happy with ServiceMagic, though, and with The Home Improvement Network [], which is local here in Chicago."

ServiceMagicÆs Foster says heÆs "seeing many contractors move their advertising money from traditional offline mediums such as direct mail, Yellow Pages and newspapers to our lead-generation service. ItÆs a better bang for their buck and enables them to drive efficiencies into their businesses." He argues that four main factors give Internet referral services the advantage: 1) Customers are more affluent, 2) the payment system for leads is often performance-based, 3) they provide flexibility for contractors in which jobs they choose to take on and when, and 4) they provide a better return on investment than traditional means of advertising.

Mixed reviews

ImproveNet has proved to be a real boon for Diontech Consulting Inc., a residential remodeling company in Flushing, N.Y. President Denis Mihalatos says that in December alone, he received $250,000 in business from ImproveNet leads. In fact, about 30% of the total business for MihalatosÆ high-end remodeling company comes from ImproveNet leads. He has used ImproveNet for more than four years and has seen considerable improvement in the company.

"IÆm happy with ImproveNet," he says. "It used to be that everything was over the computer, but now itÆs face to face with a real person, Joe Rizzo. About seven out of 10 of their leads return my call, and I get a job from about one of those seven. WeÆve expanded our database of customers, and theyÆre a good source of additional referrals."

Mihalatos also has used ServiceMagic, but he has cut back on the number of leads he follows up from that source. "We pay for these leads, from $25 to $75, sometimes $100, depending on the size of the job. With the leads from ServiceMagic, I might speak to one person out of 40 leads. They just donÆt return my calls."

A common disappointment among remodelers is that the leads they receive from Internet referral companies are of poor quality - "tire kickers," as described by Dave Pool, CGR, of D&W Custom Remodeling and Renovation in Radnor, Ohio.

"When you look at the bottom of the lead form, you see that most of these people are still in the very early stages of planning," Pool says. "I donÆt want to spend my time putting together a budget for them that theyÆll use to shop around anyway."

PoolÆs usual closing ratio for qualified leads is about one in five, but the 23 leads he received from ServiceMagic yielded only one job - for $2,300. He decided to stop using the company. "Maybe these services are better for larger remodelers, those that are in the $5 million to $10 million range. It might even be worth it if I had another salesman to help track these down. But I just canÆt put $150 into chasing a lead that wonÆt pan out. Our company isnÆt big enough."

Like Pool, Susan Boling, lead administrator of Birmingham, Ala.-based MUI Corp., has been frustrated by the low rate of calls returned by potential customers. Of 70 calls received through ImproveNet, MUI converted only five into leads, none of which resulted in sales. Eventually MUI dropped out of ImproveNet.

The bottom line? ItÆs hard to make a blanket statement about the advisability of signing on for an Internet referral service. Some respected companies have given up on them in disgust; others sing their praises. In view of the economic slowdown, however, it might be worth taking a hard look at what could develop into a good source of leads. After all, itÆs not that different from what good remodelers do with all leads anyway: figure out the payoff in the long run.

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