HVAC Demand Trends: Google LSA Revenue Performance - September

👋 Hey, Jon here! In this newsletter, we’re going to look at September's HVAC-specific Google LSA revenue performance. I’ve heard a lot of mixed reviews about Google LSAs as of late - mostly about declining performance. We are entering shoulder season, which could be a factor in the declining performance, but the up-to-date data below can help us drill a bit deeper and establish some benchmarks.

Note: This data is from a sample of 17 HVAC businesses across the US. Shout out to Josh Crouch and his team at Relentless Digital, who partnered with us to measure lead-to-revenue from their organic and LSA management services, enabling us to share these trends with you.

Also note that Google LSA spend decreased 35% month-over-month, likely due to reduced demand.

Google LSAs Drove a 14x Return on Ad Spend Potential

Last month, Google LSAs drove a 12x return on ad spend potential, calculated by summing up open estimate revenue (one per customer), sold revenue and closed revenue.

This month, with 33% fewer conversions, Google LSAs generated a 14x return on ad spend potential for HVAC services across the 17 locations in this sample.

That means for every $1 spent, $14 in revenue opportunity was generated.

Any time ROAS potential is in the double-digits for an ad channel, that’s a positive sign that there is enough demand from that particular channel relative to the spend to generate a profitable return.

However, it’s still important to look at the total spend and total revenue opportunity generated to size the opportunity of the ad channel for your business.

For example, if you spend $100 on an ad channel, and the return is 100x, that’s a phenomenal return, but only generated $10,000 of revenue. If you’re only able to spend $100 on that channel, those 100x returns aren’t scalable, and if your sales budget is much higher than $10,000 for the month, you’ll need to turn to other options to channel demand.

In this case with Google LSAs, total revenue opportunity was down 42% from August, but that’s because spend also decreased 35% and there just weren’t as many opportunities from the channel.

In short, Google LSAs generated a very healthy return on ad spend potential, but there wasn’t as much available demand to capture as the prior month, so the ratio between spend and revenue opportunity was strong, but the absolute value of revenue opportunity dropped significantly.

Google LSAs Drove a 3.97x Return on Ad Spend (Closed Revenue)

Despite the increased revenue potential for September, Google LSA closed return on ad spend dropped to 3.97x, generating $3.97 in closed revenue for every $1 spend on the channel.

For reference, Google LSAs generated a 5.68x in closed revenue last month.

A big influence on this decline was average tickets, which dropped 30% from the month prior to $1,898.

And, estimated revenue was twice that of closed revenue, meaning a lot of revenue got stuck in the estimate part of the sales cycle without ever closing.

I usually recommend setting a goal of closing 50% of total revenue opportunity, which in this sample would have been a 7x return on ad spend closed.

Another interesting data point here is that 94% of closed revenue came from new customers, so while less revenue closed, the majority of it was from net-new customers.

It Cost $297.30 to Acquire a Paying Customer from Google LSAs in September for HVAC Services

Customer acquisiton cost via Google LSAs increased slightly, by about $7 compared to the prior month.

The paying customer rate (the percentage of active customers who turned into paying customers) dropped 12% MoM, influencing the increase in CAC because fewer opportunities turned into paying customers.

Overall, just 18% of active customers (conversions in the current period + customers with appointments booked in September) from LSAs converted into paying customers.

This is a trend I’ve noticed as of late - low match rates and paying customer rates with lead opportunities from Google LSAs. Sometimes, this is an operational issue and is due to lead handling or sales follow-up, but with GLSA it does seem lead quality dropped a bit.

How Did Customers Convert Through Google LSAs?

We’ll consistently monitor how customers convert via LSAs now that there are three options for customers, and we expect the way customers convert to continue to change.

Also, any time you give a customer more than 1 option to convert online, it can create revenue leaks if those altrenative methods of conversion aren’t closely monitored.

As I mentioned above, sometimes low match rates and paying customers rates are an internal issue, so tracking these metrics by how the customer converted can be a useful exercise to identify any potential revenue leaks.

Let’s dig in:

(1) Phone calls were 87% of conversions in September (down from 90% in August)

(2) Messages were 12% of conversions in September (up 3% from August!)

(3) Booking was 1% of conversions of September (same as August)

Phone calls had the highest paying customer rate at 20%, followed by online booking (25%) and messages (11%).

Google LSA customers who converted via phone calls had the highest average tickets ($2,000) compared to messages ($750) and online booking ($695) and also accounted for nearly 95% of the total revenue opportunity.

In this case, the alternative methods of conversion (online booking and messages) were very low volume and represented a little more than 5% of the revenue opportunity for this channel.

For the sake of priorities, lead handling improvement in this case would be focused on phone calls. But if your business is getting more customers from LSAs via messages or online booking, you might prioritize QA-ing that process to ensure it offers a good customers experience.

All-in-all Google LSAs underperformed this month relative to last month, but some of that had to do with a drop in average tickets and many more opportunities getting “stuck” in unsold estimates.

General demand came down noticeably (~$21,000 in revenue oppportunity per brand) and it’s clear that GLSAs for these brands should be part of the marketing strategy, but not the only channel!

Customer behavior will ebb and flow - they key is to monitor these core KPIs across various channels to reinvest and re-strategtize approproiately for where the opportunities are to hit your goals.

Until next time . . .

-Jon