The Value of Lead Origination
All businesses use energy, and energy is a top 2–5 line item expense for most businesses. Yet, the existing commercial building retrofit rate is only 2.2% per year (reference the figure below). This means only 2.2% of businesses in the U.S. are doing something to manage and lower their energy cost. If energy is a top 5 line item expense for most businesses, why is the retrofit rate so embarrassingly low? This is especially shocking when you consider the exponential decrease in the price for solar, which we detailed in a previous post.
Referencing the figure above, the 2.2% retrofit rate is calculated by taking the annual retrofits (1.76 billion square feet) divided by commercial building stock (80 billion square feet).
Theories exist on why the commercial solar market segment is lagging: owner / agent problem, scarce origination, financing challenges, lack of originators, different standards / regulations in different locales.
Spreading solar is an education problem. The difficulty of education is compounded by the fact that most utilities, while expensive, dirty (electricity via burning fossil fuels is the majority), and mediocre in terms of service, generally function acceptably in US / Europe. This is true for both residential and commercial segments where a business owner has myriad other priorities, may not be the building owner (owner / agent problem), and does not understand the technology, installation, or finance aspects of solar. Large solar companies have mostly failed to crack this solar distribution problem by throwing money at marketing (SolarCity, for example). The only successful tactic we’ve seen to date is word of mouth — people go solar when they hear about it from a center of trust. That center of trust manifests itself today inwhat’s referred to as a Lead Originator. We’ll explore this personna in more detail below.
Referencing the theories above, we argue, the biggest challenge the renewable energy industry faces today with scaling Distributed Energy Resources (DERs) (e.g. rooftop solar, batteries, energy efficiency, etc.) is a lack of quality lead origination. The primary issue is that Lead Originators are not recognized and not compensated for their early-stage work and upfront efforts to generate qualified leads. Compensation typically comes in the form of low commission structures tied to total system cost, have long sales cycles (6–12 months+), and are NOT guaranteed. This results in network disengagement from Lead Originators and a much lower rate of quality lead origination than the market can support and society requires to rapidly transition the world to a low carbon future. We need to accelerate lead origination velocity.
Soft Costs
Lead origination falls under the category of “soft costs,” which are not falling as fast as hardware costs for solar. The U.S. Department of Energy (DOE), Office of Energy Efficiency & Renewable Energy, defines soft costs as:
Soft costs are the non-hardware costs associated with going solar. These costs include permitting, financing, and installing solar, as well as the expenses solar companies incur to acquire new customers [lead origination], pay suppliers, and cover their bottom line. These “soft costs” are tacked-on to the overall price a customer pays for a solar energy system.
The above image is from 2016, but as you can see from the latest 2018 research report (below) from Greentech Media (GTM), high soft costs persist and continue to make up >60% of the solar price.
For the remainder of this post we’ll hone in on the lead origination (customer acquisition) component of soft costs to define and explore how quality lead origination can reduce soft costs for the overall ecosystem.
Lead Origination
Lead origination is the process of finding a new DER lead, typically performed by a Lead Originator. Lead Originators generate new DER leads for the energy industry, and their role is synonymous to sales agents or representatives in other industries like real estate.
Example of Lead Origination:
Consider a commercial rooftop solar project. The Lead Originator has a relationship with or sparks cold-call discussions with the customer, performs at-risk marketing efforts to educate the customer, and ultimately gets the customer to move forward and investigate whether or not rooftop solar makes sense for them. This is ‘Lead Origination’ created by the ‘Lead Originator.’ It’s an incredibly time consuming and costly process, but arguably the best value for the ecosystem as a whole.
DER (Energy) Project (Asset) Supply Chain
A high quality lead is one that is well qualified such that the process can frictionlessly move forward to the next state in the supply chain for further investigation, engineering, and ultimately installation. In general, the DER (or general energy) project (asset) supply chain can be distilled to these basic steps:
After new leads have been found and qualified, they’re handed off to engineers (or engineering firms, consultants, developers, etc.) who perform studies, calculations, and produce design/construction drawings. Design/construction drawings are analogous to blueprints for a house. These “blueprints” list the materials to buy (e.g. # of solar panels, panel manufacturer & model) and give measurements and instructions on how to install (e.g. where on the roof to mount the solar panel and at what orientation to the sun). Installers then buy the materials listed on the design/construction drawings (or blueprints) and swing the hammers to install the components.
Engineers and installers reduce their soft costs (project acquisition cost or customer acquisition cost (CAC)) by having access to well-qualified leads. It is easy to understand how significant this can be if a firm doesn’t have to hire a massive internal sales and business development team to find and qualify their own leads.
From an engineer’s perspective, below are some key items that constitute a well-qualified lead:
- Customer that is ready to engage with meaningful intent
- General site information and high-level inspection data
- 12-month record of utility bills
- 15-min interval data
- Signed Letter of Engagement
With the above in hand, the engineer will still likely need to gather additional information to fully understand the customer’s needs, wants, and constraints (quantitative & qualitative data), but the point is that the above gives the Engineer two critical items:
- A customer that has meaningful intent to pay for the engineer’s services, and
- Initial data which provides a starting point for the engineer to work from
This is a ‘qualified lead.’ Having access to a qualified lead greatly reduces the engineer’s soft costs and increases the likelihood of a project moving forward.
Next, let’s explore what constitutes a well-qualified lead from the installer’s perspective:
- Construction ready DER (energy) project
- Engineering is complete
- Materials are ready for purchase (Bill of material (BOM) on the drawing)
- Customer is ready to buy, they want to move forward and pay the installer build to the project
Similar to the engineer, the installer’s soft costs are greatly reduced when they have access to construction ready projects that are ready for execution. This is also a ‘qualified lead.’
Winners and Losers
The energy industry ecosystem greatly benefits from qualified leads though decreasing soft costs, working on more DER projects which generates jobs, and benefits society as a whole (reduced carbon emissions, lower cost of energy, etc.) from actually installing those projects. It’s all about finding ready customers and doing more DER projects. With a healthy pipeline of qualified leads, we’re actually installing more projects and not simply paying consultants and engineers for energy audits, studies, etc. However, there’s an industry problem with the way the system works today.
Today, Lead Originators work for commissions that are paid out only after a project is completed. This means the project must make it all the way through the DER supply chain and actually be installed in order for them to get paid. This can take up to 12 months or more. If the project doesn’t get installed, for any number of reasons, the Lead Originator doesn’t get paid. Meanwhile, consultants, engineers, and installers are paid for their services upfront and save on their soft costs by gaining access to well-qualified leads. This is not right.
A major deficiency of today’s DER supply chain is the undervalued compensation received by the Lead Originators (value creators). Lead Originators are under-recognized and underpaid for the early value they deliver. Lead Originators are the pioneers who spend their resources at-risk. Lead Originators provide a tremendously valuable front-end effort, but the current system does not adequately compensate them for the value they deliver to the industry. The current DER project supply chain process lacks the organization and tracking structure to adequately recognize and reward value creation at each state of the DER project supply chain — especially at the lead origination state.
One could parallel a songwriter or music artist to a Lead Originator. Both create early value while others (record companies / engineers / installers) monetize their work downstream, save on their soft costs, and increase their own profits.
The current system doesn’t adequately recognize and reward early state work because of the lack of the structures to track and compensate value created in real-time as the lead moves through each state of the DER supply chain.
In the next post we’ll introduce Energy Blockchain Network’s solution for accelerating lead origination velocity by recognizing and rewarding the Lead Originator.
Special thanks to Max Webster for his inspirational contributions to this article.
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