How to value solar leads

This question goes to the core of why some solar installers are growing strongly and others are falling by the wayside.

The difference is that the larger and more successful companies know how to properly value a new solar customer and so they value not only the gross margin they will get from the first job they win from a lead source, they also value the downstream referral jobs they will get from the word of mouth recommendations of that customer.

This has only been possible because these companies have invested in high quality CRM and sales tracking software and have paid vigorous attention to ensuring their staff use these systems properly.

These companies now have concrete data that shows on average for every new solar customer they win from a competitive source they will win a further 3-5 jobs in word of mouth jobs without a lead acquisition cost over the following 5 years. Of course this number will depend on the product, pricing and quality of service offered by the solar company.

If we assume that the average gross margin in a residential solar job, before operating overheads and sales costs is $5,000 then to a company that does not value downstream referrals (as they don't have the systems to track this) paying $2,500 in lead costs to get a customer seems crazy given they then have to run their whole business within a margin of $2,500 per job.

However, for a company that has developed the systems to track the downstream referrals they know this same lead source is worth $15,000 to $25,000 in gross margin over the next five years. Even after applying a high discount rate of 25% to this future revenue stream they know the NPV (net present value) of this customer they won by spending $2,500 on leads is over $10,000.

Spending $2,500 to create a revenue stream with a discounted NPV of over $10,000 is good business in any language and this is why the larger solar installers continue to bid up lead acquisition costs. They are not crazy they just have access to better information.

The divide between the small solar installers and the larger solar installers that have access to this data is further widened by the fact that with small installers it is often the owner that has to call each of the solar leads.

If we assume the average solar lead costs $100, and the average cost per acquired customer is $2,500 then 24 out of the 25 leads the company gets don't end up leading to a sale. This can get pretty demoralizing for a small owner operator but for a larger company that employs a team of sales reps the 24 rejections don't pack the same emotional punch.

If you are the owner of a small or mid sized solar installer then consider the following:

What would you say if someone came to you and said spend $10,000 per month on their leads, they cost $100 each and will close at 4%. You would probably tell them to stick their leads where the sun don't shine. However, do you know that if you were to say yes and spend this money each month then after 5 years you will be more than $2 million richer than if you say no and don't make this investment each month.

The truth is solar leads are valuable even when they do close at low rates and the larger solar companies know this...

Regardless of whether you are a big or small solar installer two questions remain when it comes to solar leads:

 

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Published: March 31, 2016, updated on November 06, 2017

Author: Andrew Sendy

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