That Lead Isn’t Worth What You Think

Your agency says the leads are worth $2,400 each because your average job is $2,400.

Lovely. Apparently every caller buys, nobody cancels, and your technicians work for sandwiches.

A lead is an opportunity, not an invoice. Its value depends on whether it becomes a job and how much gross profit that job produces. Miss either part and you’re putting a price tag on wishful thinking.

Three numbers. No marketing magic.

For this calculation, lead value means the expected gross profit generated by one lead’s first completed job, before marketing and sales costs.

You need three numbers:

• Close rate: the percentage of leads that become completed jobs.
• Average job value: revenue per completed job, also called average ticket.
• Gross margin: the percentage of revenue left after the direct costs of delivering the work.

The formula is:

Lead value = close rate × average job value × gross margin.

Gross margin needs to include real delivery costs: materials, subcontractors, and direct labor with its associated payroll costs. Use the same costing rules across every source you compare. Otherwise, your labor percentage can look better simply because somebody moved payroll into another bucket.

If your dashboard calls a signed estimate a “close,” account for cancellations before using that rate. A booked job that never happens produces exactly zero job revenue.

Put dollars through the formula

Here’s an illustrative example for a local electrical contractor. These are example numbers, not industry benchmarks.

A batch of 100 leads produces 30 completed jobs. Average job value is $2,400. Gross margin is 45%.

• Close rate: 30 ÷ 100 = 30%.
• Total revenue: 30 × $2,400 = $72,000.
• Total gross profit: $72,000 × 45% = $32,400.
• Expected gross profit per lead: $32,400 ÷ 100 = $324.

The shortcut gives the same answer:

30% × $2,400 × 45% = $324 per lead.

That lead carries $720 in expected revenue, but only $324 in expected gross profit. Confusing those numbers is how a marketing report looks fantastic while cash flow looks like shit.

And $324 is an average across the batch. An individual lead might produce nothing or a $6,000 job. You cannot tell which just by admiring the notification on your phone.

Stop averaging unlike leads together

One company-wide number is a starting point. It is not a verdict on every source.

Consider two illustrative sources:

• Source A: 40% close rate × $1,500 average job × 40% gross margin = $240 per lead.
• Source B: 20% close rate × $4,000 average job × 50% gross margin = $400 per lead.

Source A closes twice as often. Source B still produces more expected gross profit per inquiry.

That matters when someone declares a campaign “better” because the phone rings more or the close rate looks prettier.

Now add cost per lead. If A costs $60 and B costs $100, they leave $180 and $300 per lead respectively after lead-generation cost. Neither number is net profit. Sales effort and overhead still exist.

Compare sources within similar services where possible. Emergency repairs and planned replacements have different economics. Reviews may help one source close better. Pricing or job mix may explain another source’s larger margin.

The useful question is what the whole batch produces, not which metric wins a beauty contest.

Make the inputs earn your trust

A precise formula cannot rescue sloppy records.

Start with leads old enough to have reached an outcome. Comparing last week’s inquiries with last week’s completed jobs mixes different batches. For longer sales cycles, look further back.

Use these rules:

• Count unique opportunities. Three calls about the same repair are one lead, not three.
• Remove spam and genuine duplicates. Keep real but unsuitable inquiries attributed to their source; bad targeting is part of its performance.
• Match completed jobs and their revenue to the leads that produced them.
• Calculate average job value from completed jobs in that batch, not your favorite big invoice.
• Use total gross profit divided by total revenue for the batch’s gross margin. Don’t simply average job margin percentages.
• Show the lead count beside every result. Five inquiries and one monster job are not a reliable benchmark.

Write the definitions into your reporting SOPs. Otherwise, next month’s improvement might just be somebody changing what “lead” means.

Treat the result as an estimate, not permission

The $324 example describes historical performance. It does not promise the next lead will perform the same way.

Test how sensitive it is. Holding everything else constant:

• At a 20% close rate, lead value falls to $216.
• At a $2,000 average job value, it falls to $270.
• At a 35% gross margin, it falls to $252.

Those are planning scenarios, not predictions. They show which assumptions deserve attention before you trust the headline number.

Nor is $324 permission to spend $324 acquiring each lead. That would consume all expected gross profit before rent, office payroll, sales costs, and owner profit. Congratulations: you bought yourself unpaid work.

Fix the inputs first

Monday morning, pull one source’s most recent fully resolved batch of leads. Match it to completed jobs, revenue, and direct costs.

Calculate its close rate, average job value, gross margin, and expected gross profit per lead. Put the batch size beside the answer.

If you cannot match inquiries to jobs, fix that first. If job costs are missing, fix those next. Don’t debate whether a lead is worth $200 or $400 while the numbers underneath it are fiction.