How to Raise Solar Revenue by Cutting Cancellations

California’s solar sector continues to cast a shadowy forecast across the industry since the rollout of Net Metering 3.0, a regulatory shift that’s dimming the long-time state leader in renewable power.  

The ripple effects are unmistakable as uncertainty breeds reluctance among businesses and consumers alike, stalling the once-vibrant market to a sluggish crawl. Factor in the sting of stubbornly high-interest rates, elongating payback periods and sucking up discretionary spending elsewhere and you have mapped out a course for the industry to sit in the doldrums until market winds change. 

Combatting Solar Cancellations Through Operational Excellence

What are the casualties of current conditions? Hesitant homeowners mean rising contract cancellations. As businesses grapple with the harsh reality of selling longer ROI timelines to homeowners, they need to pull every operational lever to ensure maximum profitability with each system sold. This starts by plugging any leaky holes in their operational design and installation buckets.   

The Profit Equation for EPCs 

In these market conditions, it’s back to basics. Understanding your costs is critical to making a profit. This involves considering various factors that influence the final financial outcome of each project. Here we will break down how a myriad of inputs weave together to determine your profit per install. Let’s call this, the profit equation. It simplifies the calculus by deducting cancellations, hardware outlays, and operational costs from total sales. We’ll then come back to this to show where you can improve operations to reduce cancellations and therefore increase profit. Let’s dive in. 

Installations Gross Margin = Sum of Sales−Cancellations(t) −Materials Costs−Transactional Costs 

Where: 

• Total Sale Value is the revenue from selling a system. 
• Cancellations(t) represents cancellations, with t a function of time from sale to installation. 
• Materials Costs include the expenses on solar panels, inverters, and other system components. 
• Transactional Costs encompass labor, transactional costs, and other expenses directly related to completing the install.  

The Direct Link Between Accurate Design and Higher Earnings

The Profit Equation for EPCs provides a foundational understanding of the financial dynamics at play, allowing you to more directly tie operations and costs to profit per job. Often overlooked in this simple equation is t, or the time between sale to install. The complete cancellation rate formula looks something like the following:

Cancellation Rate = Base Cancellations = (Increment * t)

Where:

• Base Rate is the cancellation rate at t=0 (immediate installation)
• Increment is the increase in cancellation rate per days post sale.
• t is the time interval between sale and installation. 

In the solar industry, the adage “time is money” holds particularly true, with the duration from sale to Permission to Operate (PTO) being a critical factor in a project’s financial and operational success. By streamlining this timeline, solar companies can significantly reduce cancellation rates, thereby increasing their profitability through the completion of more jobs. One pivotal strategy for achieving a faster transition from sale to PTO is the optimization of the design and engineering process, specifically by minimizing the need for redesigns. Remembering that most cancellations happen before the project is even permitted, we can hone down on areas where we can see the most improvement. Let’s run through some scenarios on how this could affect your bottom line. We’ll use some placeholder data based on high-level averages.

Another Cost to Redesigns

Costly and time-consuming call offs and redesigns, triggered by inaccuracies in initial site assessments, kill your operational efficiency. They also make for a poor customer experience and turn fickle customers into cancellations. It’s a virtual guarantee the likelihood of a cancellation rises very day that ticks by after the sale without PTO.

To counteract this, you need tools that helps you work faster and more accurately. Enter IMGING from Loveland Innovations – an advanced site survey platform. IMGING enables comprehensive, to-the-nail accurate, drone-based site surveys that provide detailed insights into the installation site. Ensure precision right from the start and streamline critical design phases with automated drone technology and smartphone capture offered by IMGING. By generating DXF files post-IMGING usage, you not only expedite the design process but also uphold accuracy, shielding against permitting delays and future redesigns.

How to Increase Your Installer Revenue by Six Figures in One Month

Consider a scenario with a solar system sale priced at $24,000 ($3.00 per watt * 8kw system = $24,000). A shrewd business operator understands they must discount closed contract by cancellation rate for forecasting and cash management. Every 1% reduction in cancellation rate earns you an increased expected revenue per contract sold.  

For instance, lowering the cancellation rate from 25% to 20% leads to an increase in revenue for the businesses. If you sell 100 contracts a month and lose 25% of them, then your actual expected revenue per job sold should be discounted $6,000. A drop from 25 to 20% moves the sales loss from $6,000 to $4,800 for a single project. If you are doing 100 installs a month, you increase your revenue by $120,000.  

5 Salvaged Contracts * $24,000 = $120,000