Solar - Customer Acquisiton Cost

solar

http://www.woodlawnassociates.com/solarcity-customer-acquisition-cost/ - done reading
http://www.greentechmedia.com/research/report/us-residential-solar-pv-customer-acquisition - done reading
http://www.greentechmedia.com/articles/read/Innovation-in-Customer-Acquisition-Will-Save-US-Residential-Solar-619M-B - done reading
http://www.greentechmedia.com/articles/read/the-forgotten-cost-in-residential-solar-customer-acquisition - done reading
http://www.solarpowerworldonline.com/2014/02/spend-solar-customer-acquisition-dollars-wisely-part-one/ - done reading
http://theenergycollective.com/rosana-francescato/297596/how-can-we-reduce-solar-soft-costs-part-3-lowering-customer-acquisition-co - done reading
http://cleantechnica.com/2013/09/27/lowering-resilient-soft-costs-solar/ - done reading
http://www.greentechmedia.com/articles/read/is-software-the-solution-to-solar-soft-costs - done reading
http://www.arinnasolutions.com/solutions/a-guide-how-to-achieve-lower-customer-acquisition-costs/ - done reading
http://www.cleanpower.com/2012/reduce-solar-soft-costs/ - done reading
http://cleantechnica.com/2013/11/05/conergy-geostellar-solar-soft-costs/ - done reading
http://cleantechnica.com/2012/06/18/10-million-prize-companies-can-install-5000-new-rooftop-solar-panel-installations-2watt/ - done reading
http://www.woodlawnassociates.com/financing-returns-in-residential-solar/ - printed
http://www.woodlawnassociates.com/solar-customer-acquisition-cost/ - printed
http://www.greentechmedia.com/articles/read/lowes-adopts-sungevity-software-for-solar - printed
http://www.greentechmedia.com/articles/read/semi-diy-solar-systems-at-costco-amazon - printed
http://www.greentechmedia.com/articles/read/the-top-ten-energing-trends-of-2009 - printed
http://cleantechnica.com/2014/05/21/sunshot-catalyst-takes-aim-at-solar-soft-costs/ - printed
http://www.greentechmedia.com/articles/read/SunRun-Gets-200M-Tax-Equity-Commitment-For-Resi-PV - printed
http://www.woodlawnassociates.com/solar-cost-of-capital/ - printed
http://www.woodlawnassociates.com/tax-equity-financial-model/ - printed
http://www.woodlawnassociates.com/utilities-and-distributed-solar/ - printed
http://www.woodlawnassociates.com/wp-content/uploads/WA-SIE-Extract.pdf - Solar Installation Effectiveness - printed
http://www.woodlawnassociates.com/economics-solar-installation/ - printed
http://www.insidesolarblog.org/1/post/2011/04/cost-of-solar-electricity.html - printed
http://www.woodlawnassociates.com/tax-equity-101/
http://emp.lbl.gov/sites/all/files/lbnl-6350e.pdf
http://www.woodlawnassociates.com/wp-content/uploads/WA-Tax-Equity-101.pdf
http://www.woodlawnassociates.com/wp-content/uploads/Solar-Marketing-Effectiveness-Extract-120401.pdf
http://www.insidesolarblog.org/1/post/2012/08/residential-solar-financing.html - done reading
http://www.greentechmedia.com/articles/read/solar-leasing-and-then-there-were-four - done reading
http://www.greentechmedia.com/articles/read/What-Really-Motivates-Consumers-to-Install-Residential-Solar - done reading
http://www.inc.com/ilan-mochari/verengo-solar-customer-acquisition.html

The report specifically highlights soft costs—which include such things as marketing and customer acquisition, system design, installation labor, and the various costs associated with permitting and inspections—as the most promising target for further PV system price reductions. “Soft costs are especially important from the perspective of public policy efforts,” Barbose notes. “Unlike module prices, which are established based on global supply and demand, soft costs can be influenced more directly by local, state and national policies aimed at accelerating deployment and removing market barriers.” https://newscenter.lbl.gov/2013/08/12/installed-price-of-solar-photovoltaic-systems-in-the-u-s-continues-to-decline-at-a-rapid-pace/

What is the average customer acquisition cost?

$5373 / customer, or $0.89 per Watt. See http://www.woodlawnassociates.com/solarcity-customer-acquisition-cost/

What are some soft costs?

The report specifically highlights soft costs—which include such things as marketing and customer acquisition, system design, installation labor, and the various costs associated with permitting and inspections—as the most promising target for further PV system price reductions. “Soft costs are especially important from the perspective of public policy efforts,” Barbose notes. “Unlike module prices, which are established based on global supply and demand, soft costs can be influenced more directly by local, state and national policies aimed at accelerating deployment and removing market barriers.” https://newscenter.lbl.gov/2013/08/12/installed-price-of-solar-photovoltaic-systems-in-the-u-s-continues-to-decline-at-a-rapid-pace/

“Soft costs, according to the DOE,” explained Genability Founder and CEO Jason Riley, “include customer acquisition and installer overhead, financing and contracting, permitting, inspection, and interconnection, and installation and performance."

SolarCity says their customer acquisition cost is only $2500. Other sources say it is only $0.50 or $0.60 / Watt. Why are your numbers different?

In both cases it comes down to how expansive the definition of CAC is. Our approach is not unlike that of a sculptor. We start with a solid block of material—all costs, as captured in a company’s books—and we cut away everything that is not CAC. Thus, we are unlikely to overlook certain acquisition costs just because we forgot or did not know to ask for them.

What is included or not included in CAC?

In both cases it comes down to how expansive the definition of CAC is. Our approach is not unlike that of a sculptor. We start with a solid block of material—all costs, as captured in a company’s books—and we cut away everything that is not CAC. Thus, we are unlikely to overlook certain acquisition costs just because we forgot or did not know to ask for them.

How straightforward this is depends on the financial detail we have. If we have access to a company’s general ledger, we can review each transaction to determine if it is related to customer acquisition. It can be more difficult if we only have access to the P&L. Some lines on the P&L may contain certain expenses that are CAC and others that are not. For example, a company might have one line for “marketing & advertising” and another for “salaries & wages”, but that doesn’t give us enough information because we should realize that some—but not all—of the salaries and wages line is for the marketing and sales teams.

Nonetheless, it is often possible to make an CAC estimate from financial statements and other reasonable assumptions. For example, we estimate that SolarCity’s residential customer acquisition cost in for the quarter ended March 31, 2014 is about $1 / Watt installed or $0.70 / Watt booked.

It’s pretty clear that the $2500 / customer figure originally came from what SolarCity calls “sales & marketing” on its P&L divided by the number of customers. Let’s look at this on a per-Watt basis for 1Q14: SolarCity reported sales & marketing expense of $47M, deployed 82MW, and booked 136MW. Sales & marketing were $0.57 / Watt deployed and $0.34 / Watt booked. If you are willing to believe that 90% of what they spend is for residential (not commercial), sales & marketing for residential were $0.63 / Watt deployed and $0.38 / Watt booked.

But, what SolarCity calls out as sales & marketing on its P&L is not the entire cost of acquiring customers. Consider this paragraph from their 10K:

Operating leases and solar energy systems incentives cost of revenue is primarily comprised of the depreciation of the cost of the solar energy systems, the amortization of initial direct costs, maintenance costs, accruals for solar energy performance guarantees and warranty repair costs…Initial direct costs include allocated incremental contract administration costs, sales commissions and customer acquisition referral fees from the origination of solar energy systems leased to customers. These contract administration costs include incremental personnel costs, such as salary, bonus, employee benefit costs and stock-based compensation costs.

In plain English, this means that for leases and PPAs (which are the vast majority of the business) SolarCity includes sales commissions, referral fees, and the costs of lease contract administration in cost of sales, not in sales & marketing. We estimate these items cost about $0.18 / Watt on a cash basis.

SolarCity also has general & administrative expenses one might consider to be customer acquisition costs. Consider this definition of G&A from their 10K:

General and administrative expenses include personnel costs such as salaries, bonuses and stock-based compensation and professional fees related to legal, human resources, accounting and structured finance services. General and administrative expenses also include allocated corporate overhead costs related to facilities and information technology, travel and professional services.

We suspect that a reasonable portion of G&A is actually only there to support customer acquisition. For example, you can’t have sales and marketing organizations (to do customer acquisition) without HR and finance support. It’s an estimate, but assume 90% of SolarCity’s $35M in G&A is for residential and 50% of that supports customer acquisition: that’s another $0.23 / Watt deployed or $0.14 / Watt booked

Adding these together, we estimate that SolarCity’s residential solar customer acquisition is about $1 / Watt deployed and $0.70 / Watt booked.

Customer acquisition currently accounts for about 10% of overall residential solar system costs but has great near-term potential for cost reduction. PV hardware costs, especially those of modules, are beginning to bottom out, and installers are looking at soft costs to save time and money. While some soft costs such as permitting will primarily be reduced with government support and industry lobbying, installers can make changes to their lead generation strategies, allocation of resources, software used, and other external services procured to reduce customer acquisition expenses. GTM Research estimates that residential solar customer acquisition currently costs installers $0.49/W. Over the next four years, this cost will fall to $0.35/W, saving the industry a total of $619 million between 2014 and 2017. See http://www.greentechmedia.com/research/report/us-residential-solar-pv-customer-acquisition.

Customer acquisition costs are at about $0.69/W. That doesn’t include general and administrative labor costs or sales commissions, which can take customer acquisition over $1/W. The total cost to acquire a customer is routinely over $1000, sometimes over $4000. http://theenergycollective.com/rosana-francescato/297596/how-can-we-reduce-solar-soft-costs-part-3-lowering-customer-acquisition-co

Customer acquisition costs are much more than just the advertising, marketing, and deal-closing costs associated with getting systems installed. They include the costs of dead deals that must be spread across successful ones, as well as the costs of customized designs to appease customers. While customer acquisition costs represent about 10 percent of deals in both residential and commercial markets, they are still painfully high compared to Germany and Australia. The good news (from preliminary NREL 2012 benchmarking data) is that these costs are coming down a bit. What’s more, this is a very active entrepreneurial space, and in the residential market customer acquisition appears to have the most certain path to its roadmap target of all soft cost categories. See http://cleantechnica.com/2013/09/27/lowering-resilient-soft-costs-solar/

Should we compare CAC across different companies?

No. The definition of CAC (what should be included in CAC calculation) is different for each company. SolarCity might be hyper-efficient with most of their customer acquisition activities and yet willing to spend heavily at the margins to acquire additional customers and grow faster. Solar companies that want to remain relevant should certainly be tracking CAC, but the right way to use it is as a tool to make each marketing vehicle or channel as efficient as possible, allowing more marginal channels to fit into the mix. This will allow accelerated growth and profitability.

Should we track CAC?

Yes. Solar companies that want to remain relevant should certainly be tracking CAC, but the right way to use it is as a tool to make each marketing vehicle or channel as efficient as possible, allowing more marginal channels to fit into the mix. This will allow accelerated growth and profitability.

What are some solar marketing companies?

  • Solar Marketing Group
  • Solar One Media
  • UnThink Solar
  • rocketcreative
  • Impress Labs
  • Ontility
  • OnGrid Solar
  • Sales Educator
  • Generaytor
  • SolarList
  • CoolerPlanet
  • ecoleads
  • CleanEnergy
  • SolarReviews
  • geostella
  • faze
  • CleanEnergy
  • 1bog
  • energysage
  • ParamountSolar
  • Sunible

What are some of the marketing strategies being used?

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. See http://www.greentechmedia.com/articles/read/the-forgotten-cost-in-residential-solar-customer-acquisition

What are the risks of buying leads?

  • The leads might be low quality.
  • They might already be sold to competitors.
  • You may distract from your more profitable sales efforts

The first two points are problems for obvious reasons, but the third one is a little more insidious. When installers become dependent on a lead generator, they start focusing all their sales efforts on converting those leads and stop building their own sales pipeline. So instead of becoming a lead pipeline owner, you become a renter. This also means your acquisition costs are driven by the market demand for leads. Also, by not going through the lead generation process yourself, you won’t benefit from the lower acquisition costs that come from the continuous improvement of your sales process and a strengthening brand.

It’s also good to be wary of dependency on a lead generator in case they increase their rates or get bought by a competitor.

Why is predicting CAC important?

Customer acquisition is the most important solar cost, because it covers all the others: predicting this cost better can help improve a company’s management of inventory and procurement. Unpredictable consumer demand creates other costs through the supply chain in a bullwhip effect.

Why do Australia and Germany have soft cost that is twice lower than the US?

I don't know this yet. See http://cleantechnica.com/2013/09/27/lowering-resilient-soft-costs-solar/

The report compares PV system pricing in the United States to a number of other major international markets, and finds that U.S. prices are generally higher. The differences are particularly stark in comparison to Germany, Italy and Australia, where the price of small residential PV systems installed in 2012 was roughly 40 percent lower than in the United States. The report attributes much of the difference in PV system pricing to soft costs, citing the fact that the cost of PV modules and other hardware is typically similar across countries. “These international experiences suggest that deep near-term reductions in soft costs are attainable in the United States,” says report co-author, Naïm Darghouth, also with Berkeley Lab. He adds: “Reductions in soft costs may naturally accompany growth in market size, as we’ve seen in some of the largest markets such as Germany and Italy, though other factors are also clearly important.”

What’s more, nearly every penny of the savings in upfront capital costs in those countries is due to much lower soft costs. In brief, soft costs have become a national embarrassment.

What is the US road map for making solar energy competitive with other form of energy?

In 2011, the U.S. Department of Energy launched the SunShot Initiative, to make solar energy cost competitive with other forms of electricity by 2020. NREL and RMI’s roadmap shows how we can reach SunShot cost goals—to reduce the cost of solar energy systems by approximately 75 percent—from 2013 to 2020. This roadmap report was compiled with over 70 industry interviews and also supported with prior research by NREL, RMI, and outside sources.

What do we need to do in order to reduce soft costs?

In order to drive solar adoption, we must focus on reducing cost. This include both reducing hard costs as well as soft costs.

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