The solar industry is rapidly growing and the number of solar installations in the United States are expected to quadruple between now and 2030. Any industry with such explosive growth will go through many changes, but one thing that has remained the same are the three types of business models that dominate the solar industry.
Whether you are an industry veteran or someone who is joining the solar community, it’s always a good idea to review these business models before you start your own solar business.
Solar Sales-Only Companies are sales organizations who just sell solar and turn over their projects to subcontractors. There is nothing inherently wrong with these companies, in fact many solar companies follow this business model when they first enter the solar industry.
This business model can be a good starting point when you’re first starting out, but there are many drawbacks to this in the long-term:
You can become very good at selling solar, but you’ll always be challenged when a homeowner asks “Do you do your own installs?”
This is important to homeowners and they’re right.
It becomes very risky for both you and a homeowner, when you give up control of operations and hire a subcontractor to complete their solar installation. There is no control over how subcontractors do their work, who they hire, or even the materials and processes they use.
When you rely on subcontractors, you’re often stuck selling the materials or financing options they use. If many of your competitors rely on the same subcontractors, it’s difficult to set yourself apart from the competition, because you offer the same materials, installers and financing options.
How do you differentiate yourself from your competitors other than lowering your prices?
It may not seem like a huge cost when you’re first getting started and selling a few projects each month. As you grow and consistently close customers, you’ll discover just how expensive it is to hire subcontractors and how much they eat into your profit margins.
When you begin to consistently close 8 deals per month, we recommend that you hire your own installation crew. This can save you $28,000 per month that you would otherwise pay out to subcontractors. When you start to close 12-14 deals per month, we recommend that you bring on a second installation crew. At that volume, you can cut your costs by $43,000-$50,000 per month by bringing your operations in house.
When you decided to venture out and become a business owner, you wanted the freedom and ability to run your own business. You lose this ability when you give up control of your business to subcontractors.
When you hand off your customers to a subcontractor, you can no longer ensure your customer has a good experience and this can lead to negative reviews. Negative reviews make it difficult for you to sell to future customers. You can soon be forced to lower your prices in order to compete. This obviously creates a downward spiral that no business owner wants to face.
If you follow this business model, you are not set up for long-term success. You might be profitable in the short-term, but you are not building a business - you’re only collecting commissions.
Solar EPCs (Engineering, Procurement, and Construction) primarily focus on providing services to sales-only solar companies. The vast majority of Solar EPCs do good work, have the best intention for the projects they work on, and provide services that sales-only companies need.
The benefit of this business model is you do not have to spend money on marketing or sales rep commissions, but it also has several drawbacks:
Solar EPCs may avoid spending money on marketing and sales commissions, but they have to price their services at what is typically referred to as a “redline” - well-below industry standard price in order to run a profitable business
You’ll need a large volume of projects to keep your business afloat. Project management and installation teams can become overwhelmed because of the need to install more projects to make the same money. Installation quality typically suffers because of the need for speedy installations.
Too many solar sales reps are poorly trained and provide false information to homeowners. It is generally the installers when they show up on installation day who have to break this bad news to homeowners or help them understand how batteries or net metering truly work.
Sales reps often load up roof spaces to maximize their system sizes, so they can get bigger commissions. This often leads to problems with the plans’ design, engineering, and permitting phases of the project.
A Solar EPC can be a profitable business model, but like sales-only companies, they also leave a lot of money on the table. By only performing project management and installation services and not selling the projects themselves, a Solar EPC sacrifices around $4,800 in additional profit on average per installation.
Unfortunately, these types of solar companies are few and far between.
Most solar companies are either focused on bringing projects in or putting projects up. There is a huge difference in the expertise needed for marketing and sales in the solar industry compared to the expertise needed for operations and installations. This is why most solar businesses focus on sales or installs, but not both.
Vertically-integrated solar sales and installation companies are companies who are responsible for both sales and installs. They handle the entire process of going solar from start to finish, which can provide tremendous value to homeowners.
One of the largest drawbacks for either sales-only solar companies or Solar EPC businesses is that you lose control of your business and are at the mercy of either subcontractors or sales organizations.
The main and indistinguishable benefit of operating a vertically-integrated solar company is you have control of your business and its outcomes - most importantly the opportunity for greater profits.
The benefit of having control over every step of the process cannot be overstated. When you control your business, you can begin to develop and create a strong company culture. Your company’s culture guides the success of your marketing and appointment setting.
“How do you communicate the opportunity to go solar?”
“How is your first communication with a prospective buyer handled?”
These are very important questions because it sets the stage for what a homeowner can expect when meeting with a consultant, which dictates the amount of success your solar consultants will have.
Solar consultants benefit from the positive company culture, excellent online reviews, industry-leading consumer financing options, and an offering that is both premium quality and competitively priced.
When you control all aspects of your business, you will have a much easier time selling and make more money per project.
Vertically-integrated solar companies can make more per project than both EPCs and sales-only companies, since they receive the full profits from a project by selling and installing - over $8,880 per project or about 30% of the total project price. This will vary by market depending on many factors, but this is a good average to set your sights on.
A vertically-integrated solar company business model will allow you to have control over all aspects of your business. This gives you the ability to build a long-term and sustainable business.
You will make much more money per job, but you will also have extra expenses as well. This can be a drawback unless you have a lean business model to limit your expenses and maximize your growth.
Astrawatt Solar is the 3rd fastest growing solar company in the United States. We achieved this by developing a vertically-integrated solar sales and installation business model to ensure high customer and employee satisfaction.
As an Astrawatt Solar franchisee, you will receive marketing, sales, IT, finance and accounting, and customer support from the experienced professionals at our headquarters, so you have the support you need to grow your business while limiting the amount of staff you need to achieve your growth goals.
We will provide you with our lean business model blueprint and process to maximize your growth and limit the need to hire more employees than you need. A vertically integrated solar company may only need 7 employees to run the business efficiently while installing up to 10 projects per month. This includes 1-2 solar consultants, a project manager, project coordinator, and 3-4 solar installers. One crew installing just 8 projects per month on average should provide over $2.1 million in revenue for their franchise.
Astrawatt will provide in-person and computer-based training for new and ongoing training for all employees, as well as job ads to help you find talent, and recommend pay scales for new and tenured employees for all positions you will need to hire
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