The solar PV industry will suffer if the working relationship between solar retailers and subcontractor installers is weak, write Leandro Caruso and Gareth Clarke of Cranfield Projects, especially when it comes to rates.
Over the past decade we have witnessed an increasing number of solar retailers driven by a seemingly cost-competitive marketing strategy as their backbone for achieving higher volumes in sales. But how much do we know about the effect of this on third-party subcontractors and consequently on the customers we fought so hard to get?
We know that a solar installer is responsible for the final step of the process and that a retailer must go through from new customer acquisition to final installation, so it’s probably fair to say the customer’s final touch-point with the company’s sale process is determined by its solar installer.
If this is so, to what extent can the retailers pressure them to lower their costs to the lowermost limits?
Subcontractor install rates can often be so tight, after deducting materials and other expenses, that all it takes is a minor operational hiccup and a loss in incurred. This is a fact that installers as well as retailers should be aware of to understand the pressure their service providers are under.
To better understand how these low-cost shortcuts may seriously affect the retailer’s overall volume in sales, it is necessary to comprehend that an unsatisfied installer will transfer frustrations to the customer and this will escalate to a much wider network of potential customers, risking potential referrals and organic growth.
Subcontractors should also never agree to install for a company without having done due diligence on the company, including sales practices and procedures. It’s critical there is strong communication between sales teams and the installers. Ideally, they will meet and do a few site inspections together so the installer can show exactly what data is required.
For example, what is very common these days for grid-connected PV is a “remote site inspection”. In an ideal world, the installer will perform a physical site inspection to ensure the system can be installed, as well as do an analysis of exactly what materials are required to perform the install. But it can add several hundred dollars to the cost of the system to have this done. So instead many retailers prefer to take the risk. But unfortunately, in most cases the risk falls on the installer because if the job is cancelled or postponed through no fault of their own they still must pay their own business expenses including labour costs.
Too much too soon
A key factor that retailers must consider when securing rates is installer experience. A typical newly accredited installer will be happy to agree to lower than average rates in order to get more experience. The challenge here is a CEC accreditation alone is not the be all and end all, as there are so many challenges an installer faces in each property they encounter. An experienced installer will know how to deal with these issues, whereas a newly accredited installer may struggle or resign to the fact it can’t be done.
This risk factor is commonplace with commercial installs, where we’ve seen predominantly residential subcontractors agree to take on a commercial install at very low rates. But there are significant complexities with commercial installs that don’t exist in residential. So whereas the solar retailer may think they’ve succeeded by securing low rates, all they’ve done is put the project at high risk of failure. A phrase we hear often from experienced installers who charge themselves out at well above market rates is “call us when something goes wrong”. And despite their rates being higher than average, they will be booked out months in advance as wise retailers know that by paying more in the beginning will save you more in the long run.
Send in the professionals
In selecting a subcontractor for commercial installs, aside from technical competence there is a distinct difference in the “soft” skills that are critical to acknowledge – as there’s a much higher level of professionalism on site which is typically required when installing for a major corporate versus domestic installs, not to mention approach to health and safety. We always recommend solar retailers to interview install teams for such factors to ensure they won’t cause issues on site.
Installer rates are not only subject to the laws of supply and demand. It’s true that areas with a higher concentration of CEC-accredited installers mean lower labour rates. But there is also a lot of disgruntlement in certain regional and remote areas where installers refuse to do work for other sales companies. In many regional and remote parts of Australia installers flatly refuse to install for third parties, or command prohibitive rates due to historic issues with unscrupulous operators, or because they simply want to preserve customers in the local area for themselves and so make it difficult for “outsiders” to do business.
On the flip side, there have been stories of regional installers “stealing” sales by turning up at the customer’s house and offering a cheaper deal. So, it’s important that retailers also do their due diligence and get a contract in place to protect them from stealing clients and stock. One simple way to avoid this is to only subcontract to installers who don’t retail their own systems.
To get around this many solar retailers will use “travelling” install teams. Whereby trucks are loaded up with up to eight jobs at a time and metro installers at favourable labour rates travel sometimes thousands of kilometres, performing sometimes two jobs a day. In some parts of Australia this is essential, such as Western Australia where there is a scarcity of accredited installers in outback areas. But this does cause other concerns. Such as, if the installer needs to return for any kind of rectification, it becomes cost-prohibitive to send the installer back to site.
Know your cashflow
When agreeing rates, it’s critical that every single eventuality is agreed upon so there are no surprises. There are countless stories of high level install rates being agreed but when the invoice comes through there are extra items which were not discussed or approved. This causes disputes, which can delay payments, which can drag on and ultimately hurt subcontractors’ cash flow.
We recommend subcontractors use a cashflow finance facility, where your invoices can be funded in advance of being paid by the solar retailer, typically to 80% of face value within 24 to 48 hours. The balance is then paid when the invoice is paid, less a small fee. Many of these finance providers offer a trade credit insurance policy, so if the retailer goes into receivership or liquidation up to 90% of the debt can be insured. It’s a great “sleep at night” policy as anyone who has been installing solar for some time has been burnt by company failure. The facility also allows for credit checks of the retailer before committing to doing business with them.
Cranfield Projects is in the process of launching a cash flow finance solution through a third party which will also provide subcontractors with a type of overdraft for business essential items. This can provide, subject to a clean credit file and GST registration, a cash advance facility of up to $15,000, as well as trade finance facilities. If invoices are owed restricting cash flow, and materials are needed to complete a job, the facility can pay directly for the materials and provide you with up to four months to repay.