This is Part 3 of an article series from Shawn Sinclair Smith, president and founding director of Siviniti. Read Part 1 and Part 2, and check back for future installments.
As a contract partner to several solar sales and installation companies, I try to do short (one-week) on-site contracts to help companies analyze the solar side of the business, build strategy and execute on a profit plan. I suggest avoiding long-term contracts if you’re unsure of what the industry will bring you over the next 12 months.
I recently returned from one such trip with a solar installer adding a sales team and following the pattern of many other companies riding the wake of SolarCity (although the company just announced it was halting door-to-door sales). Only 90 days into its sales team rollout, it was clear something was horribly wrong. An otherwise thriving contractor was nearly putting itself out of business by bringing in more sales flow. Here’s why:
Finding customers for solar was a departure from their regular sales channel.
The traditional contractor has a method of gaining new work over time. This flow may come from builders utilizing the contractor as a sub, or typical pull marketing allowing them to fill the need as the phone rings. In the solar industry, only a few builders seek your contracting expertise, and the phone doesn’t ring as often. My client bought into the SolarCity dream without calculating the real cost. The installer followed others and hired door-to-door sales teams. This was their first experience with outside sales (besides the bootstrapping entrepreneurial founder), and they entered a level of separation from the client. Running outside sales takes experience and a keen ability to herd cats.
Cost to acquire customers exceeded the profit per job.
For most solar companies in the United States, losses are a reality. I spend more time with clients on this matter than anywhere else. Finding profit in the value chain can be done, but it requires a fine-tuned attack. I realize contractors would never do a job—HVAC, plumbing, electrical, roofing, anything—and lose money on the deal. To profit in the solar space, you must understand the true costs to land a customer. Purchased leads, data sets, call centers and feedback loops must be formulated in a way to not sink the ship. You can bankrupt your company simply by purchasing leads in the wrong way.
My client was paying $9,000 in customer acquisition costs per deal, which is not unheard of. They also learned you can make the phone ring, but you must also know the costs associated with each customer call. Companies answering in-bound customer sales calls are paying thousands to make it ring. An understanding of these formulas is essential.
Support staff overwhelmed the books.
It is a common neglect for business plans to lack internal support calculations. My client was hiring more staff to aid in following up, sales design, inside sales closing and more management. With my construction background, I understand the simple scale of common construction process. This rarely requires deep back-office support. Adding solar sales to your quiver can be the best decision you make, but it must be approached with open eyes. Overstaffing sales does not front-load profit; it increases short-term losses.
Sales attrition compounded the losses.
The solar industry is full of lead generation, call centers, inside/outside sales teams, design squads, engineering groups—you name it. But the contractor/installer knows there is no money unless it gets bolted to the house. For integrated sales-to-installation companies, we see deals lost before installation reaches 50%. A few companies have claw back at 65%. Many factors add to this formula of attrition, but one constant remains… claw backs exist. Whatever the percentage of job loss, the only cost that does not hit the books is labor and materials. The cost to acquire the customer stays the same. If your attrition is 50%, your cost to acquire net of cancellations is double. This must all be digested when building out a sales strategy and should be taken with solid counsel.
SolarCity and many other solar retailers were built on an “acquire at any cost” approach and that it would be “greater later.” Later never came.
This may sound like a very dismaying view, but my job is not to make you feel good. My job is to make you profitable. You cannot follow the guidance of SolarCity, Sunrun or Vivint to light the way. You need to make profit on every job and forego the “greater later” philosophy. You can enter or stay in solar while sticking to your tried-and-true methods of doing business. It takes an honest view of the market and the clean space, but it is possible to add sales and increase profit even in such a volatile market.
Solar is either going to be the most profitable or the costliest part of your business, and knowing what is coming in the industry is critical. Seek proper counsel and make the most of your abilities.
Shawn Sinclair Smith is the founding partner of Siviniti, a strategy and innovation consulting firm, working with client companies throughout the Americas. He is an entrepreneur, public speaker, author and father to three expensive teenagers. Follow him on LinkedIn.