The cost of acquiring new residential solar customers for installers has disappointed predictions, increasing in costs over the past several years, and will continue to increase before beginning to decrease in 2019, according to a new report from GTM Research.
Published earlier this month by GTM Research, the new report, U.S. Residential Solar PV Customer Acquisition 2017: Current and Projected Costs and Channel Strategies, was authored by GTM Research Solar Analyst Allison Mond, analyzing the “hot topic” of residential solar customer acquisition. The report identifies customer acquisition as any and all direct and indirect activities “used to identify, qualify, engage, and ultimately close a sale with a customer. These costs include things such as generating or purchasing leads, sales commissions, and other overhead sales and marketing costs, such as salaries. In 2013, customer acquisition costs were $0.41/watt in 2013 (or $2,870 per customer based on a 7-kilowatt system), increasing to $0.52/watt in 2016 ($3,668 per customer).
Customer Acquisition Cost Methodology Example
This runs against market predictions that expected customer acquisition costs would fall as the industry grew and matured, with intense competition across US markets including California and the Northeast serving to require installers to spend ever-more money to win a residential solar bid. Specifically, according to Mond’s report, “customer acquisition costs stems from higher wages and commissions paid to retain talented salespeople, increased hiring in marketing departments to evaluate changes in sales strategies, and a decrease in close rates for popular strategies such as purchased leads and canvassing.”
But Mond does predict that costs will decline, but only after two more years (2017-18) of increases. Specifically, Mond expects customer acquisition costs to reach $0.56/watt in 2017, and $3,898 in 2017, before beginning to slowly drop down to $0.40/watt and $2,785 in 2022.
Moving forward, it will be interesting to see how things change. Over the past several years, the industry has evolved and its sales strategies have had to evolve with it, seeking new ways to be competitive. The long tail of residential solar installation is benefiting the smaller local players, while causing difficulty for the big name companies. The report found that leading installers like SolarCity, Vivint Solar, and Sunrun average $0.70/watt compared to between $0.28/watt and $0.36/watt for the smaller companies who benefit more from referrals and the high-publicity of those same big-name companies who end up having to pay more.
But referrals overall are down, from 50% in 2013 to 39% in 2016, due to competition intensification in major markets. As such, the lead generation strategies have shifted to match.
Channel Strategies Used to Acquire Residential PV Customers, 2013 and 2016
Mond expects the market for potential residential solar customers will increase as the overall cost of solar continues to decrease, and consumers begin to be presented with the financial value of solar, which in turn will make customer acquisition even easier. However, “changes to the value proposition through net energy metering (NEM) and rate reform remain risks and could hinder reductions in customer acquisition costs spurred by lower PV costs.” Further, current business changes for the big-name players will come to fruition over the coming years, and the difficulties of shifting sales strategies will dissipate.
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