Michael Stone for Markup & Profit Revisited writes on lead-generating services within our industry. Stone recommends that you only pay between 3% to 5% of your total net profit on marketing and 1% to 2% in new home construction. Stone recommends that you stay away from paying too much overhead. To make sure your overhead costs don’t get out of hand, Stone says you should use the 5% fee of net profit to sales price of every job that incurs that fee, “That will prevent you from having to raise your markup on all jobs, but it will make the price of these particular jobs much higher.”

Obviously, lead-generating services don't consider 5% of the sales price to be a burden. They figure contractors make so much money they carry it home in a wheelbarrow, so why not charge 5% of the sales price? They see an opportunity to get rich quick, they want to take money home in a big wheelbarrow. They'll do it by soaking contractors. Those contractors then have to charge homeowners higher prices or risk losing their business.

Which leads to a question: If homeowners knew that contractors using these services were charging them a higher price, would they be as anxious to use the service?

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