When we think of customer acquisition costs lately, we think of John. John had been in the solar installation business for a few years and had built a good reputation for himself in the community. He had a strong team of installers and was able to offer competitive pricing for his services. However, John was struggling with customer acquisition. He was spending a lot of money on marketing and advertising but wasn’t seeing as much of a return on his investment as he expected.
While he wanted to position his company for growth through his marketing efforts, the low return on his initiatives meant that sales reps were still stressed, and his bottomline was too tight to make additional PM or service hires. Eventually, John had to take a hard look at his marketing plan to figure out why his customer acquisition cost was so high and how to rethink his strategy.
We speak with ambitious solar installers every day — which means we know John’s story isn’t unusual. If you're a solar company struggling with high customer acquisition costs (CAC), you're in good company. Many solar companies face this challenge, as CAC can be a major barrier to growth and profitability, and it’s a slippery problem to diagnose.
In this post, we'll explore three common reasons why solar companies struggle with high CAC and provide tips for addressing these challenges. By understanding the root causes of high CAC and working to improve the customer experience, solar companies can take steps to reduce their operational costs and improve their profitability. So what are the root causes of a high CAC, and what can you do about them?
Cause #1: Cancellations drive up the cost
As we touched on above, cancellations can have a significant impact on costs for a solar company. When a customer cancels an order or contract, it can drive up the cost of acquiring new customers and reduce the overall profitability of the company. Cancellations represent pure customer acquisition costs with none of the revenue that is generated from a sale. In other words, a solar company incurs the costs of acquiring a new customer but does not receive any of the revenue that would have been generated from the sale.
To reduce cancellations and minimize their impact on your customer acquisition costs, it's important for a solar company to make fair promises upfront and ensure that its proposals accurately reflect the products or services being offered. Solar installations are a big expense. By being transparent and upfront about what customers can expect for that money, a solar company can help to reduce the likelihood of cancellations and improve customer satisfaction.
Overseeing the quality of your proposals to ensure that they accurately reflect the products or services being offered can also improve the overall efficiency of the sales process. Homeowners will have less questions when there’s no conflict between what the salesperson tried to sell them on and what is actually reflected in their customer contract.
Here are a few additional tips for reducing cancellations:
- Provide excellent customer service - Providing excellent customer service can help to reduce cancellations by building trust and loyalty with customers. This might include responding promptly to customer inquiries, offering personalized support, and addressing any issues or concerns that customers may have.
- Clearly communicate the terms of the sale - Make sure that customers fully understand the terms of the sale, including any cancellation policies or fees. This can help to reduce misunderstandings and ensure that customers are aware of their rights and obligations.
- Offer incentives for customers to complete the sale - Consider offering incentives to customers to encourage them to complete the sale, such as discounts or freebies. This can help to build goodwill and increase the likelihood that customers will follow through with their purchases.
- Monitor and analyze cancellation data - Monitor and analyze cancellation data to identify trends or patterns that may be contributing to cancellations. By identifying these trends, a solar company can take steps to address any underlying issues — like a miscommunication during the sales training or a deficiency in your proposal software — and reduce the risk of cancellations.
Cause #2: Stigma impacts consumer interest
One challenge the solar industry faces is negative consumer perception. Unfortunately, solar has had some bad actors that have spurred an unfair skepticism of the industry writ large. This happens in all industries, of course, but solar is still a newcomer to mainstream thinking in some ways, and many homeowners are looking for reassurance that going solar is a good idea. A negative review or news story can put an immediate dent in a solar company’s credibility, regardless of whether it’s merited.
Some customers may be hesitant to invest in solar energy due to concerns about the reliability or performance of solar systems or because they have heard negative stories about other people's experiences with solar. This can make it difficult to attract leads and generate sales, as solar companies need to overcome these negative perceptions in order to convince potential customers to invest in solar.
One way to combat this challenge is to focus on generating positive press and increasing consumer awareness about the benefits of solar energy. By highlighting the environmental and financial benefits of solar, and by sharing testimonials from satisfied customers, solar companies can help to build trust and overcome negative perceptions about the industry.
Investing in marketing and advertising efforts that target qualified leads can also help increase awareness about solar and drive sales for the business. Many homeowners may be unaware of the benefits of solar or may not fully understand how it works, which can make it difficult to generate sales. By providing clear, concise information about solar energy and investing in education and outreach efforts, solar companies can help to increase awareness and build trust with potential customers.
Cause #3: Salespeople commissions are too high
In the solar industry, a focus on sales growth has often led to high commissions as a way to motivate salespeople to bring in new customers. While this can be an effective strategy in the short term, it can also lead to higher customer acquisition costs and may not be sustainable in the long run. Commissions are typically based on the value of the sale, and as the cost of solar energy systems continues to decrease, the value of each sale may also decline.
This can lead to a situation where salespeople are receiving lower commissions for the same amount of work, leading to decreased motivation and higher turnover. Looking to avoid these retention issues, many solar companies have maintained incredibly high sales commissions. Rather than reduce their commission structure, these businesses are instead forced to pass on high proposal costs to solar consumers in order to maintain their overall margins.
It’s true that you don’t necessarily need to be the cheapest proposal in order to win the deal. However, if you’re dramatically higher than your competitors without the great customer experience to back it up, your customer acquisition costs are going to skyrocket. Customers can sniff out a solar salesperson that is just looking to make a quick buck — if not at the outset, then certainly later in the project. The result is a high CAC alongside high cancellation rates.
As we all know, the cost of acquiring new customers is typically higher than the cost of retaining existing customers. Companies that rely heavily on commissions are often more focused on bringing in new customers rather than retaining their existing ones, even if it leads to detrimental numbers like we outlined above. This strategy can lead to a situation where companies are constantly seeking new customers, which can be costly and unsustainable in the long run.
So how can you retain your top sales talent if you’re not willing to hop on the hamster wheel of ever-increasing commissions? One alternative to high commissions is to offer increased benefits or equity in the company to attract and retain salespeople. By offering additional benefits, like health insurance, paid time off, or training opportunities, companies can help to motivate and retain their sales teams. Additionally, offering equity in the company can provide a longer-term incentive for salespeople and align their interests with the business's success.
Tesla took this strategy to the extreme, eliminating salespeople from the auto sales equation entirely and moving to an online-only sales model. This model has been particularly successful for Tesla, as it has allowed the company to reach a wide customer base without the need for a large network of physical dealerships.
The method has helped the company increase its sales while keeping customer acquisition costs low. That said, be sure to strike a balance between lowering too-high sales commissions and taking care of your salespeople — Tesla’s drastic measures required the company to revisit them and adjust a short time later.
Tips for reducing CAC
Below are a few additional tips that can help you lower your customer acquisition costs.
- Streamline the sales process - By streamlining the sales process, a solar company can reduce the time and resources required to acquire new customers. This might include automating certain tasks, using a customer relationship management (CRM) system to track and manage leads, or implementing other technologies to improve efficiency.
- Invest in targeted marketing and advertising - Investing in targeted marketing and advertising can help to attract qualified leads and reduce the cost of acquiring new customers. This might include using paid advertising platforms like Google Ads, running targeted social media campaigns, or investing in content marketing to attract organic traffic.
- Implement a referral program - Implementing a solar referral program can help to reduce CAC by encouraging existing customers to refer new customers to the company. This can be an effective way to acquire new customers without incurring the costs associated with traditional marketing and advertising efforts.
How Bodhi can help
The Bodhi platform has a number of tools that can help you reign in customer acquisition costs. By automating many of your processes, you'll be able to reduce labor costs while being more responsive to the needs of your customers. Bodhi’s communication tools also bring all of the important documents and communications into one central location, making customer expectations easier to set and manage. Once you've impressed one customer, Bodhi's referral program software will help you turn that customer into a source for new customers. To learn more about what Bodhi can do for your solar business, schedule a demo today.