Over the past few years, the U.S. residential solar market has benefited from record-breaking industry growth and continued system cost reductions, with expectations that it will become easier and cheaper to acquire new solar customers. However, even as consumers become more aware of the benefits of using solar, customer acquisition costs remain the most expensive category of solar costs.
Competition among the top three residential solar installers in the U.S. remains fierce. To maintain and grow market share in a highly competitive environment, installers have to spend heavily on marketing to win deals, resulting in high customer acquisition costs. For the first half of 2021, customer acquisition costs accounted for 23 percent of the total residential system price at 0.75 per watt (5,250 per customer on average for a 7-kW system). From 2018 to 2020, customer acquisition costs increased by 9.2 percent , while total system prices decreased by 3.6 percent over the same period.
Customer acquisition costs are not uniform across the residential solar market and vary significantly by size of installation and region of operation. These differences are primarily driven by the installer's preferred sales strategy and the relative cost of each strategy. Partnerships with retailers (such as Home Depot) and door{{0}}to-door sales remain the most expensive sales channels and are most commonly used by national, large regional, and midsize regional installers. Customer acquisition costs in these categories average well above 0.50/watt. On the other hand, local installers more often rely on low-cost referrals, social media, and community campaigns, reducing customer acquisition costs to between 0.25 and 0.45/watt.
As the U.S. residential solar industry matures, a growing number of third-party sales organizations support solar installers. These organizations range from lead development companies that offer sales of leads of various qualities to entire sales teams that allow installers to outsource 100 percent of solar sales. The traditional solar sales channel has evolved into a complex web of different sales channels and potential partners, and installers can enter a "trial and error" phase to determine the best solution for their budget and business model.
The COVID-19 pandemic has forced many installers to adopt new marketing strategies, especially to expand opportunities for digital offerings. These solutions include small changes such as updating the website, increasing brand awareness, and making larger investments in new partnerships and software. However, the pandemic will not mean the end of in-person sales. Due to its time- and labor-intensive nature, door-to-door sales are significantly more expensive than online sales or telephone appointments. But some installers still see it as their most effective sales model, especially when entering new markets.
COVID-19-driven digital investments have led to a temporary increase in customer acquisition costs in 2020-2021. However, the widespread adoption of digital sales and software solutions is expected to bring operational efficiencies and reductions in customer acquisition costs. While some installers will turn to in-person lead generation and consulting, there is evidence that some companies will move to digital on a more permanent basis. Installers who have invested heavily in new digital solutions starting in 2020 report that 50-100 percent of their sales are made online.
In addition to selling online, software tools offer installers the opportunity to increase operational efficiency and improve customer experience. Many of these tools are already on the market and help maximize efficiency and accessibility at nearly every stage of the solar sales funnel, from lead generation to close of sale. Installers have shown a willingness to explore these software solutions and diversify their sales model, setting the stage for continued long-term success.
Relieving the cost burden of acquiring customers is all about attracting the right customers at the right time. In the transition to digital, more advanced software solutions are needed to reach new audiences and better understand consumer behavior. Software that can determine why customers say "no" while minimizing the time investment required by sales reps has the potential to radically reduce customer acquisition costs. As the U.S. residential solar market enters another phase of growth, digital sales and marketing will play a key role in the overall success of the industry.