The problem with pay-per-lead: why contractors deserve better

How pay-per-lead works

A homeowner submits a request on a lead-generation website. The platform sells that lead to three, four, or five contractors. Each contractor pays a fee just to get the homeowner's contact information.

The contractor then calls the homeowner, competes with the other buyers for their attention, drives to the job site, and provides a free estimate. If the homeowner picks someone else, or decides not to do the project at all, the lead fee is gone.

The math does not work

Take an illustrative example. Say a residential contractor pays $30 to $80 per lead, depending on the trade and project size, and closes 20% of shared leads. The cost per acquired customer is then $150 to $400.

On a $15,000 bathroom remodel at a 20% margin, the contractor's gross profit is $3,000. A $300 customer acquisition cost takes 10% of that profit before the first tile is set.

For smaller jobs, the math is worse. A $3,000 electrical panel upgrade at 20% margin yields $600 in profit. A $150 lead cost takes a quarter of it.

What gets rewarded

Pay-per-lead platforms reward speed, not quality. The contractor who calls first and quotes cheapest gets the job. This creates a race to the bottom where the winner is the contractor most willing to underprice.

Honest pricing loses. A contractor who accurately accounts for permit fees, inspection time, materials, and a fair margin will quote higher than the contractor who is guessing or cutting corners. On a shared lead, the lower number usually wins.

How sealed bidding is different

In a sealed-bid marketplace:

• No lead fees. Contractors bid on projects for free. There is no cost to participate.
• No shared leads. The homeowner posts one project. Every qualified contractor sees the same scope and bids independently.
• No undercutting. Bids are sealed. No contractor can see another's price. Pricing is based on cost and margin, not on what the last guy said.
• Credentials matter. Homeowners see CSLB license status, bond, and workers' comp alongside the price. A higher bid from a better-credentialed contractor can win.
• The homeowner pays the platform fees. The contractor keeps 100% of the contract price. When payments launch, the platform fees will be paid by the homeowner, including a small protected-payment fee when milestones are funded.

The shift

The pay-per-lead model was built when the internet was new and getting found online was the hard part. Today, the hard part is not being found. It is being fairly compared.

Sealed bidding aligns incentives: the homeowner gets competitive pricing without calling around, and the contractor gets a fair shot at work without paying for the privilege of being ignored.