In case you missed it, the residential market is shrinking. Solar retailers have long complained that there isn’t much profit in PV, owing to the highly competitive nature of the residential sector. Unfortunately its a problem that is only going to intensify.
The residential market size is shrinking every year both in volume and value, and this is only increasing competitive pressures and a race to the bottom.
This is compounded by the relative ease with which solar companies can enter (and exit) the residential market. Businesses which fail to adapt to the changing marketplace will not survive long.
So far the decline in the the residential market has been offset by growth in the commercial sector, which has recently enjoyed growth rates exceeding 50% p.a. Commercial is still a small part of the market, but (as we’ll see later) commercial offers greater opportunity for profits, and will reward early investment… the commercial market is not to be missed.
To illustrate my point, the image below shows the decline of the residential sector (green) and the growth in the commercial sector (blue). Note this chart excludes the 100kW+ market which is growing fast.
But the commercial PV market has some significant differences to the residential sector; these will be explored in the following sections of this article. But firstly, its important that solar companies recognise that commercial sales are harder to find and more complex to close than residential sales, so they need to become become more efficient and effective in their sales process.
It’s not nearly as easy to close a commercial PV sale, when compared to residential sales. Businesses have often got multiple decision makers, an accountant as a gatekeeper, and solar is a non-core business distraction for most companies. As a result, many solar companies have wasted a lot of time on creating commercial leads that led nowhere, often after spending hundreds of thousands of dollars on a commercial sales manager.
Commercial sales requires patience (see “Commercial is where all the profit is”), and a lot of effort. Effort that includes chasing interval metering data, setting up meetings with busy executives, refreshing your marketing material and website, and spending a long time educating potential customers and then de-risking their purchase.SunWiz conducted a survey and interview series on soft costs for the APVI as part of its contribution to the International Energy Agency PVPS.
A forthcoming summary report reveals that commercial project development cycle takes a median of 169 days from initial customer contract through to commissioning – almost triple the duration the residential project cycle. The sales phase is the lengthiest component of a commercial project development cycle, typically taking over 70 days for commercial PV (compared to 30 days for residential).
Cheap operators focussed upon turnover of high volumes of low-margin sales simply can’t afford to invest this time in a commercial sale.This gives a massive advantage to those that dedicate time and resources to commercial PV sales, as your cheap competitors will never be effective in this sector.
If you’re one of those people who enjoy providing great service, then this is the segment for you. The challenge then becomes figuring out how to maximise the service you can give to the customers most likely to buy. Thankfully there are tools that can save you thousands of dollars of your time.
There’s no margin for error (but this acts in your favour)
In residential PV, systems typically cost less than $10,000, so you’re not likely to face a massive legal bill if something goes wrong. In commercial PV, with $40k+ on the table, then there’s every chance you’ll be sued if you get something wrong. What goes wrong most often is an PV salesperson mis-reads a commercial electricity bill – these complex beasts involve a highly-confusing set of numbers and often a separate charge for peak demand. The most common bill misinterpretation errors are:
The problem with all of this is that you can be sued for getting it wrong (and I’ve heard of a few cases where its happened). By promising to deliver a specified reduction in electricity bill, Australian Consumer Law implies that you need to make up the dollar difference if you fail to do so. Its a real pity that this occurs when there’s a sophisticatedly easy-to-use calculation tool that pays for itself in a single sale and which improves the professionalism of your proposal (so you can charge more). Anyway, a $40k system can’t be sold from calculations on back of a napkin.
The good thing about a lower margin for error is that your stupid competitors will inevitably get it wrong and suffer financially for it, not to mention incur major reputational damage. So its imperative to use an accurate financial calculator… and you can use the same tool to discover the maximum you can charge while still keeping your customer happy.
It’s a numbers game, maximise your efficiently and efficacy.
A profitable commercial PV division is all about numbers. To justify the overhead of commercial salespeople, you need a large pipeline of potential customers, and an efficient process to focus upon the highest quality leads. Its best to start by filling the pipeline with high-quality leads, – the scattergun approach to customer acquisition was fine for residential, but commercial sales requires sniper-like precision.
Here’s the numbers for your business: reduce the cost of customer acquisition by effectively targeting the customers most likely to buy. Waste less time and effort selling to customers that lead nowhere. Improve your conversion rate by providing greater customer service and reducing your customer drop-off rate. Increase the price you can charge by demonstrating professional excellence and making the competition look risky.
Put it together and you have lower operating cost, increased conversion rate, and increased profit margin, which together = super profits. Remember, its really important to fill your pipeline with high quality leads – from businesses most likely to buy PV.
Here’s a tantalising idea: if you get hold of one key number then you can have a very happy customer AND increase the price you charge (=pure profit). Getting hold of that one key number requires a small but significant change to your sales focus, and if you do this then you’ll be super-profitable and have a healthy referral business.
In Part 2, we’ll reveal four more reasons and resources to tackle the commercial market profitably.
Warwick Johnston is head of SunWiz. Find out more about ProfitVoltaics, which advises on how best to tackle the commercial market; bbecome the go-to business for solar in the best sectors and regions; reach decision makers and access customers sitting just beyond your reach; and improve your conversion rate using SunWiz’s unique advantage.
