Average Cost Per Lead for Contractors: How to Calculate a Number That Actually Makes You Money
If you've ever stared at a Google Ads bill and wondered whether $140 is a good lead or a bad lead, you're asking the wrong question. There's no good or bad lead cost in the abstract: only a lead cost that makes you money and doesn't quietly erode your budget while, technically, working.
Most contractors approach their marketing budgets from a guesswork sort of place, adjusting based on how much a lead cost them, and whether the cost made them cringe. It should be the other way around: you, as the business owner, need to decide on a maximum lead cost that leaves you profitable, and act on that as a floor.
We have a formula for you, below, which uses a few easily-found inputs to help calculate it.
Why the industry average cost per lead is a trap
You don't have to dig far to find articles touting the "industry average" cost per lead. Blended national figures for search-ad costs recently put the average around $90 per lead for home services, but it swings hard by trade — plumbing tends to run closer to $130, with roofing and remodeling often seeing figures over $200, and ranges for different trades often spanning over ten times from cheapest to most expensive.
Local Services Ads (the "Google Guaranteed" listings) tend to see cheaper costs for similar trades on average than standard search ads, but none of it tells you what you should want your cost per lead to be.
There is no objective truth about a target cost per lead based on some nebulous "industry average," whether it's $200 lead can be a fantastic deal for a roofer closing $18,000 jobs for a plumbing contractor or a terrible one-job handyman making $300. The only value in an industry average is as a sanity check, to tell you if you're massively out of line with peers. Your target CPL has to be calculated to your own numbers, not some alleged industry standard.
The formula: working backward from a lead's value to you
This approach only has two inputs you need to put in, and you probably already have them in your invoicing software and head.
Step 1: Find your expected revenue per lead (you may need to average across all your leads if some converted and some didn't).
Expected Revenue Per Lead = Average Ticket Size × Close Rate
Not every lead that converts is going to be a $6,000 job, so you have to average across all your tickets in your area, and if you have any leads that didn't convert, they'll lower your average ticket size, spreading your revenue across more leads. If the average job that converts for you is worth $6,000 and you close 1 in 4 leads (25%), then across every 4 leads you bring in, you're generating $6,000 in revenue. Spread across all your leads, wins and losses included, that's $1,500 of expected revenue per lead — even though any single lead either becomes a $6,000 job or a $0 job.
Step 2: decide on what percentage of that revenue you're willing to spend to get it
Target (Maximum) Cost Per Lead = Expected Revenue Per Lead × Target Marketing-to-Revenue Ratio
This is what percentage of the revenue you expect a lead to bring in that you're willing to spend to get that lead. It'll vary based on how aggressively you want to grow, and how close to profitability you want to be. For a business trying to stay steady, it might put this at 7-8%, while one that's pushing for growth might be willing to put it as high as 15-20% to start with, as long as it can optimize its campaigns as it goes.
Put it together into:
Target CPL = Average Ticket Size × Close Rate × Target Marketing-to-Revenue Ratio
Walkthrough:
Let's say you have an HVAC company, with an average ticket size of $6,500 and a close rate of 25%, and you've decided on a target marketing-to-revenue ratio of 12%. Your math looks like:
Expected revenue per lead = $6,500 × 0.25 = $1,625 Target CPL = $1,625 × 0.12 = $195
That $195 is your ceiling — the most you should be paying per lead before the math stops working in your favor. If your current Google Ads campaign is generating leads at $140 you have room to be more aggressive, and if it's at $260, you need to examine your processes to figure out where to tighten up.
Flip one input and you get a completely different number: if your close rate is actually 15% and not 25% (a very common discrepancy between businesses with a well-organized sales process and those without), the same $6,500 ticket only supports:
$6,500 × 0.15 = $975 expected revenue per lead $975 × 0.12 = $117 target CPL
Same industry, same ticket, but about 40% lower per lead spent budget because of the way the lead got closed. Usually the single largest lever for a contractor to pull, other things being equal, is close rate: increasing your close rate by 1% can have as much impact on your target CPL as lowering your ad spend by the same percentage, and is often much easier to achieve.
Getting your inputs right
It's important to note that this formula is only as good as the inputs it gets, and in particular that the average ticket size should come from a consistent invoicing system (not from your head), and over a trailing 12 months if your business is seasonal, to avoid skewing.
Your close rate should be wins across total leads, not wins across quotes sent, and if possible segmented by channel (referral leads often close at drastically higher rates, sometimes over 50% vs under 20% for a similar trade, from the same business, based on whether the lead came from a referral source or a paid ad), so that you correctly calculate your target CPL for the channels you use if they vary. If you average across channels when calculating your overall close rate, your target CPL for paid ads (or whatever channel you're measuring) will be artificially generous because it's not accounting for the different performance across channels.
Target marketing-to-revenue ratio is the one true judgment call in this exercise, and should reflect how aggressively you want to grow in the year ahead.
One more note: how soon you follow up with a lead is an input that isn't shown in this math, but has a huge impact on whether it converts at all. The difference between a five-minute response and an hour's wait could be the difference between a decent close rate and a mediocre one, which affects everything else listed above.
The takeaway
Forget the industry benchmarks: take your own ticket size, close rate, the percentage of your revenue that you're willing to spend on growth, multiply them together, and write that number somewhere you'll see it, a reminder to pause every campaign that exceeds it.
Are you unsure if your current Google Ads campaigns are hitting your number? A Free Google Ads Audit from Ziptrics can evaluate your Google Ads account, reviewing what you're actually paying for per lead across your campaigns, where the money is bleeding out, and if your targeting follows your mathematical guidelines above, no obligation, just an overview of where you stand.
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