This is the second of a two-part series on the residential and commercial solar markets in Australia. In part 1, we learned that you must tackle the commercial market (profitably):
- The residential market is dying; the commercial market is thriving
- Commercial’s competitive advantage: cheap operators can’t afford to master Commercial PV
- There’s no margin for error (but this acts in your favour)
- Its a numbers game, maximise your efficiently and efficacy
In part 2, we’re going to see more reasons and resources to tackle the commercial market profitably
The residential market is saturated; the commercial market is untapped
The residential PV market will inevitably face a perpetual decline because of a high and ever-increasing penetration rate. While we still haven’t hit saturation point where every suitable roof is covered in PV (one of my life’s missions will be complete on the day that this happens), most of the quick pay-back roofs (i.e. unshaded north-facing owner-occupied) have already been taken up. This leaves the remaining housing stock facing a poorer financial return, which makes it harder to sell residential systems. There will be upgrades, maintenance, and repairs for the solar industry to perform, but this won’t sustain the industry at current levels.
The charts below show that residential penetration already exceeds 35% of suitable residential building stock in South Australia and Queensland. By contrast, the rightmost graph shows the penetration rate for commercial solar is just 3%. The great thing about this low saturation rate in commercial is that you have the opportunity to define the terms of engagement.
You have the opportunity to define the terms of engagement
Residential solar customers are extremely wary. Most potential customers you speak with have already been approached fifteen times in shopping malls, been harassed by tele-sales calls, or have formed a hard-to-shift opinion about solar (like we’re never home during the day, so what’s the point?). In the process they will have received conflicting information from unscrupulous salespeople, and will be confused and distrustful.
In contrast, potential Commercial customers are a wide open book. Sure, you’re going to have to work hard to educate them, but at least you can do so without pre-formed judgements getting in the way. The great thing about reaching the customer first is that you have the opportunity to shape their entire solar experience, and to define the terms of engagement with the competition. After all, they’ll probably shop around for prices soon after you’ve done all the hard work educating them. But if you do it right, when they look elsewhere at cheaper prices, all your customer will see is that other companies are “risky”, and risks they don’t want to take. They will see that your price is a fair and reasonable price that will ensure a great outcome.
The challenge here is how to educate your customer effectively, a) so that it doesn’t take up too much of your time, and b) so that they trust what you’re telling them (which they will know has some inevitable bias). Educate your customers well and and you can afford to charge more than your competition and sill win plenty of work.
Commercial is where all the profit is
The residential market is price-focussed and highly competitive. This is because there are low barriers to entry (and exit) – it’s easy for small players to jump in and offer cheap prices to customers who typically perform little research. And the large PV retailers have unbeatable economies of scale that also push down prices. In some recent research I conducted, some retailers couldn’t afford to increase their gross profit above 12%, for fear of losing business.
A 12% profit margin is barely enough to cover office overheads and warranty services. In comparison, commercial buyers are business-minded people with an ingrained ability to evaluate risk, who consequently spend more time considering and comparing offers. This means its not as easy for a man-and-a-van sparky to sell commercial PV on-the-side, and the intense short-term pressures faced by big PV retailers mean they don’t naturally have the attention span required to get commercial sales over the line. All of these reasons means there’s less of a price war in commercial PV. Which means there’s more profit in commercial PV.
However, while commercial PV involves higher profits, it also requires greater investment. Commercial sales are notorious for being long-gestation, as there are invariably multiple decision makers for whom PV is non core-business. Apart from taking more time, PV retailers also need higher quality tools to make a commercial sale. One look at a shoddy website, unprofessional proposal, or back-of-the-envelope calculation, and the MD, CEO, or Accountant will never spend tens of thousands of dollars with you. SunWiz has extensively reviewed PV companies’ marketing material and even the best companies need to refresh their collateral to target the business sector. The good news is that best-practice in proposals and websites take less effort than you realise.
8. Get in on the Commercial Snowball – (“keeping up with the Jones Pty Ltd”)
Because business owners invest a lot more money in a commercial system than householders, they do a lot more research and due diligence. Demonstrating your commercial experience is hugely important in commercial, far more so than in residential. The benefit of entering the commercial market is that your increasing experience acts to further increase your conversion rate – so you build up size like a commercial snowball. So too, business owners will take more interest in PV as they see their peers and neighbours taking it up – which I phrase as “keeping up with the Jones Pty Ltd”. So the commercial market will experience some compound growth and you need to be a part of it.
The best thing to do is become the ‘go-to’ guys for solar in a particular business sector and region. The important thing is become the ‘go-to’ guys for solar in the best business sectors and regions. Targeting the best sectors and regions will maximize your conversion rate and your profitability will snowball. To profitably become the go-to guys, you really want to target the businesses most likely to buy PV in the regions where there’s a large volume of commercial PV. As an example, the image below is a screenshot from SunWiz’s commercial solar database listing six commercial projects in Hindmarsh South Australia.
Summary: How to profitably tackle the Commercial PV Market
- Play the numbers game: fill your pipeline (as there are more renters than in residential), and fill it with high quality leads
- Operational Efficiency: Find customers most likely to buy; find the decision maker, automate early-stage sales process
- Sniper-like precision: Be efficient and effective in your customer acquisition strategy
- Professional service: maximise the service you give to the customers most likely to buy
- Commercial Snowball: Become the go-to guys for commercial PV in the best regions and top-buying business categories
- Best-practice marketing: Your commercial website and brochures must be up-to-scratch
- Concentrate on the high-profit customers
ProfitVoltaics: Putting the Profit back into PV
ProfitVoltaics is based upon months of research into the Commercial PV market, identifying who the leaders are, what they do well, and how solar businesses can outperform the market.
ProfitVoltaics helps solar businesses to:
- Tackle the growing part of the industry: the commercial market
- Increase profits while improving the competitiveness of your offer
- Become the go-to business for solar in the best sectors and regions
- Ensure your marketing material and website aren’t turning customers away, wasting all your hard work
- Reach the decision maker and access customers sitting just beyond your reach
- Improve your conversion rate using SunWiz’s unique advantage
ProfitVoltaics includes these tools, tailored to your circumstances:
- The best places for your business to target for commercial sales in your service area
- The best businesses for your business to target, where you can harness your natural advantage and become the go-to guys
- A review of your sales material with recommendations for how to bring it up to best practise
- Psychological solar collateral that harnesses humans’ most powerful subconscious buying motivation
- A process and material to help you effortlessly educate your customer
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.