A number of lead-generation platforms have emerged over the past few years to help local service professionals (“pros”) win more clients. The pro market is an $800 billion industry, so tech companies (big and small) are starting to take notice.
As it stands today, the lead-gen options for pros — who have been a notoriously underserved part of the labor market — are now plentiful. Startup platforms range from review-based to premium-paid, cost-per-impression, pay-per-lead, pay-per-transaction and more. And because of their successes, mega players are now entering this space to take their share — most recently Google Home Services, Facebook’s new Services search and Nextdoor’s “Nextdoor Now.”
As a result, lines in the sand are being drawn. Platform models are maturing, innovation is dwindling and certain players are worrying about their own eventual platform demise. Such players are beginning to invest in deeper platform tools to help better retain pros as competition heats up.
Companies like Yelp (flying in pros to HQ) and Thumbtack (public statement) are among the first to explore ways to give pros insights as to what ROI (Return On Investment) their platforms are truly delivering these pros — the thought being that identifying clear ROI will demonstrate the value that pros are realizing, and will motivate them to engage more with the platform itself. As it stands today, ROI is something that’s clearly lacking across the entire lead-gen space, and, if nailed, could be a huge differentiator within an increasingly crowded market.
The free listings
Yellow Pages (YP) is the notorious example of the free business listing site that helps pros get “discovered” by clients looking to hire. YP’s model was significantly improved upon by Yelp (and Google Local in a distant second place), which takes listings and crowd-sources client reviews to help pros boost their rankings in search results on said platforms.
Similarly, Facebook allows pros to create business pages free of charge to show off posts, photos, reviews and other relevant content. Facebook recently launched Facebook Services to make local service discovery even easier on the social network. Nextdoor has also begun to roll out Nextdoor Now (free for pros) to help neighborhood residents find local professionals hired or reviewed by neighbors.
The core investment for pros on these platforms is time. To leverage the free listings properly, pros need to spend a lot of time building up content — crowd-sourced or their own — to build up viral effects and boost search rankings. It’s an ongoing battle trying to put a dollar value on one’s time (although you can try), so any new lead “return” on these free platforms is tough to benchmark vis-à-vis an investment. And because consumer purchases of these services are done offline (i.e., calling, emailing the pro), capturing the source of these client leads is a manual process for the pro, as well.
Pay per impression, click or “like”
Traditional marketplace platforms like YP and Yelp also allow pros to spend advertising dollars to promote their businesses higher up in searches on their respective platforms (along with other ad-based offerings). Pros also can spend on a cost-per-click basis with Google AdWords (and now with Yelp, as well) to ensure that clients searching for “dog walkers,” “home cleaners,” etc. in specific cities will find the appropriate pros at the top of Google (or Yelp) searches. Finally, pros can spend money on Facebook to get local clients to “like” pages or engage with posts.
CPC gives pros a glimpse into what ROI is for an engagement — like a website or a profile click. But that means little if no paying clients come out of it — lead conversion is the other huge variable of return. There also is no way to capture any detailed information about a “lead” that simply clicks on a pro’s profile or website. Other engagement actions like Facebook “likes” are also difficult to be valued — go ahead and Google “What’s a like worth?” and you’ll see a range of opinions and results. At least with Facebook, pros have the ability to re-engage with clients who like or interact with any advertising.
Spearheaded by Angie’s List, the “Premium Listing” platforms ask pros to pay monthly fees in exchange for their profiles being put in front of serious clients (i.e., clients who also are paying fees to get access to pros). The issue with platforms like Angie’s List is that pros are hesitant to incur an ongoing (i.e., monthly) charge unless they are seeing a consistent and measurable return from that continuous expense. Especially with the growth of free listing platforms, premium sites need to work that much harder to deliver tools to pros that explicitly demonstrate the value they are delivering the pro — with paid memberships down 21 percent in 2015, the pro’s behavior is showing us that the value is not there.
Discounts and daily deals
Daily deal platforms — like Groupon and Living Social — provide a unique angle to help pros get in front of prospective clients. These discount platforms allow pros to offer eye-popping discounts on their services to attract interested first-time clients. For 50 percent off the pro’s typical rate and an additional 50 percent fee paid to Groupon, take-home income for the pro can be as low as 25 percent for the typical job.
Delivering measurable platform value to pros will be a crucial step.
Deep price discounts can attract many clients to purchase services (i.e., high volume), and Groupon handles the payment aspect of the transaction, so cost per booking is straightforward. The Groupon ROI model only works, however, if participating pros can convert these clients into returning customers, and make back the deep discounts that were given upfront. There’s no playbook or tool to measure the conversion rate of these consumers into long-term clients, and, unfortunately, most clients browsing Groupon are typically (and continuously) in search for price over quality.
Pay per introduction
HomeAdvisor (acquired by IAC) had been the frontrunner in the pay-per-lead (or pay-per-introduction) model. Clients post jobs or services needed, and pros can pay a fee to send a quote to or access said client. The fee (or “bid”) gives pros the opportunity to pitch themselves to consumers who can sit back and choose which pro to hire. Thumbtack is now leading the pack in pay-per-lead business, and Google recently launched its Home Services division (currently in beta, but looks to soon monetize with a cost-per-lead structure).
With this model type, pros can (in real time) measure how much they are spending to pitch clients versus the win rate — a pretty immediate return on investment calculation. The art of pitching, however, can be very time-consuming, and the “win rate” on these bidding platforms can lead to a lot of money (and time) spent with no gain seen. And similar to discount sites, clients have a tendency to accept lowest bids, leading to a race to the bottom on pricing, with pros simply hoping they can convert initial client wins into lifelong customers.
Pay per transaction
The pay-per-transaction model is the surest way for pros to understand how much they are paying out per client, without laying out tons of upfront capital with nothing to show for it. Companies like Handy, TaskRabbit, Care.com, Homejoy (now defunct) and others have coined this “on-demand” platform model, making 20-30 percent per new business they assign to pros. Even Amazon launched its Home Services platform so you can book a reliable handyman to mount the TV when you order it on Amazon (for example).
Although the “return” to the pro is a transparent (and fairly reasonable) ~80 percent net revenue with each booking, the issue with these on-demand platforms is there’s no opportunity for the pro to scale. The pro is capped at their return since the platform technically “owns” the client information and data, and prevents the pro from taking any client offline — the new client cannot be converted to a lifetime client at full 100 percent net revenue (pros act more like employees than entrepreneurs). And clients are incentivized to stay on the platform because of the convenient booking and payment experience, as well as certain protections that come with the transaction (i.e., quality assurance, middle-man in case of dispute, etc.).
What’s next for lead gen?
Delivering measurable platform value to pros will be a crucial step for many of the early platforms to fend off the billion-dollar balance sheets of Google, Facebook and Amazon. This is not an easy task, as the customer purchase of the pro’s base product (i.e., professional services) tends to be sold off platform (versus online retail, for example).
But with more transparency will come more platform adoption by pros, better retention numbers and a deeper engagement with the fundamental lead model. And fortunately for pros, the more platforms innovate around data and feature sets to compete in a market that is notorious for its low barriers to entry, the more pros themselves can efficiently and cost-effectively grow.