With most attention focused on the falling prices of solar panels, inverters and racking, it's easy to lose sight of the fact that as much as 20% of the cost of the average residential solar array in California is spent just to find customers. As component prices continue to fall, that percentage is set to rise, making efficient and effective customer acquisition a primary concern for residential installers and financiers.
We are long overdue for a discussion of the various approaches to customer acquisition and the ways that companies are attempting to make this process more efficient and effective, particularly in the high-cost residential segment. Customer acquisition is not as well understood a part of the total cost of a PV system as its more glamorous counterparts in modules, financing, or even racking and inverter technology. Innovation in each of these areas has happened in the public eye, with the greatest attention placed on the forward cost curve of PV modules or the latest PPA provider to offer no-upfront-cost PV to residential customers.
These innovations are obviously important to reducing costs and barriers to adoption of PV. However, other costs must be incurred for businesses to sell PV systems profitably, most notably the cost of customer acquisition. This cost is not trivial, and can be as much as 20% of the total revenue of many businesses when spread across the entire sales organization, commissions, and covering lost opportunities throughout the sales cycle. Acquiring residential customers will soon cost as much or more than modules themselves. Innovation in this cost element must keep pace with the hardware.
Traditional PV marketing, to the extent that anything in an industry only a few years old can be called traditional, has emerged in three phases. The first phase was the direct sales model, in which a complete (and very expensive) system is sold to customers who have usually decided that they want solar before they see the price. Real Goods and very dedicated installers serviced this market on an order-taking basis.
The second phase of PV marketing has centered around innovative financing. Financing solutions, such as those offered by SunRun and SolarCity, have allowed for a simpler sales approach that requires no money down from customers and saves them money on their electricity bill from day one. This model has reached customers through a wide variety of acquisition mechanisms, such as web presence, traditional advertising like flyers and e-mails, referrals, and event sponsorship. Given the growth in residential PV in the United States over the last few years, these methods have clearly been effective.
A new third phase of customer acquisition that involves so-called “hyper-targeted marketing” has been pioneered by Solmentum, a California-based solar sales organization (full disclosure: I helped establish the company two years ago and continue to advise it). Today, the company announced that it has sold over 1000 installations in less than 24 months. Foregoing the more shotgun approach of mass marketing, the company decided that direct and targeted sales that put sales agents directly in the communities they served was necessary to reach some customers.
Other attempts at sales innovation are being made, including the recent announcement of Sungevity's relationship with Lowe's and the establishment of an in-store presence to inform, satisfy, and convert customers. Time will tell exactly how effective and in what form that initiative will succeed, but the combination of these two announcements suggests that innovation and customer acquisition has entered a third phase where more customers -- and more suitable customers -- will need to be identified and converted, and that a one-size-fits-all strategy will miss many valuable opportunities.
Over the next decade, nearly all homeowners in the United States will or should consider PV as an option for their home. I'm excited to see the next phase of the Solar Revolution unfold as we go from a world with few solar customers to a world with millions of them. We can all look forward to hearing more about innovations in customer acquisition as a key element in bringing down costs and increasing growth rates at the same time.
Travis Bradford is the president of the Prometheus Institute. He was awarded the OBE in 2009.
The photo, taken by Steve Jurvetson, is a SolarCity array that is one of the largest in the country.