The secret weapon to boosting your solar company’s ROI? The blockchain advantage
By Mark Fisher, VP Marketing, Payment bank
In 2017, solar made up only 11% of total renewable energy generation in the US; however, according to the Center for Climate and Energy Solutions, that number is expected to grow to 48% by 2050. While it is clear that the industry is growing rapidly and continues to have an impact on consumers and the environment, solar companies themselves face a major problem: most solar business models have paper-thin margins, so achieving a meaningful ROI in the long run is a challenge. As a result, solar companies tend to look every way they can get a leg up on the market, making the competition in this industry intense and cutthroat.
Let’s take a closer look at this. If you’re a solar leader, it’s no secret that your margins tend to work against you. For most solar companies, average margins are somewhere between 8 and 10%, which means that even if you bring in a valued project, your profits are usually negligible after you’re done paying your team, installation staff, overheads and all. equipment required for the process.
The easy answer for most businesses is to pursue more commercial projects, as they promise more revenue than individual residential installations alone. However, when it comes to increasing ROI in the long run, this is definitely not the answer. Increased DSO and longer sales cycles are inherently associated with commercial projects, and these factors inevitably lead to problems when it comes to collections and other accounts receivable (AR) processes; they also make it more difficult for companies to predict their revenues and plan effectively for the future.
Many solar companies are also trying to gain an advantage by putting more money into online advertising and email marketing campaigns. But when every company in the industry tries to acquire customers in the same way, it becomes a race to the bottom. The most agile companies know they need to be creative to gain the upper hand.
But that’s the problem with innovation – often, when you try to break the mold, you end up shifting the entire playing field.
Today, significant innovation in the solar industry can be found in the form of blockchain technology – a hallmark of the decentralized financial (DeFi) movement. While both blockchain and DeFi may seem like buzzwords or transient trends, they provide solar companies with powerful tools when it comes to creating new B2B payment solutions and automated AR processes. In fact, the right technology can eliminate transaction costs, accelerate time to cash and give solar companies the ability to increase their margins on every single project.
But more specifically, how will these innovations affect the future of solar companies? And how do they ensure that companies can save more time and money across the board?
What is blockchain technology?
Before we get into the exact benefits that blockchain offers, it’s important to understand how it works. Blockchain is a decentralized technology that verifies the transfer of funds and information without the need for a trusted third party. Think about it this way: Instead of storing information in one central location, information on the blockchain is copied and shared across a network of many computers. Whenever information changes or is added to the network, every computer on the network is updated to reflect that change. Therefore, human intermediaries are no longer needed to approve transactions as this decentralized system provides an even more secure way to make payments traceable, immutable and instant.
This technology is the blueprint for much of the innovation that can take place in AR processes, accelerating the cash cycle of enterprises and providing better methods of revenue collection. It could even enable new ways to fully accept payments by offering alternatives that allow businesses to break free from the old payment network and its associated punitive transaction fees.
How blockchain is making a difference to the solar industry
So how does blockchain help the solar industry in particular?
Today, most solar companies accept payments through two methods: checks and credit cards. However, each of these payment methods has its own unique issues. Every year, companies in the US spend almost $160 billion on paper-heavy processes such as sending and receiving both invoices and payments. Paper checks in particular lead to longer DSO, additional costs, increased risks of bounced and late payments, and additional overhead for accounting processes. On the other hand, credit cards can cost you more than 3% of your earnings. For example, if you charge a customer $30,000 for an installation project, you lose $900 of that income — just to make sure the payment changes hands correctly. And, as the exchange rates are expect to rise, you can also expect to lose more of your revenue to the card networks.
While both payment pitfalls may seem like a necessary evil, they cause unnecessary damage to your solar business. That’s where blockchain and other fintech innovations come into play. Companies like Paystand have created next-generation payment solutions that eliminate the need for paper checks or credit cards altogether; instead, you can trade transaction fees for a fixed monthly subscription that gives you access to a bank-to-bank payment network. We have even built a blockchain especially for companies that ensures every transaction through our system.
“We use all kinds of software technology to help our business operate efficiently and reduce soft costs,” said Gregory Sachs, COO of EmPower Solar. “From drones to marketing automation to our customer payment systems, software like Paystand helps us deliver a superior customer experience by enabling customers to pay for their project milestones with a simple click. Fintech solutions like these help us save on overhead, time and customer communication. This in turn allows us to deliver a great customer experience and pass savings on to customers so that we are more competitive in the market.”
Clearly, blockchain-enabled offerings can help businesses adopt new, less obvious solutions that ultimately deliver big results when it comes to improving margins, customer experience, and ROI. A better payment platform can also help solar companies automate manual AR processes, and this increase in efficiency can help solar companies gain the upper hand by giving them greater control over their finance departments where it matters most.
There is no doubt that blockchain will allow solar companies to access a bright future – a future where they have the ability to treat money like software and put their revenues on autopilot.
While there is room for more than one solar company to win in the market, there will certainly be a meaningful difference between the companies that make the choice to adopt new blockchain technologies and those that remain saddled with the legacy payment system. Undoubtedly, forward-looking solar companies will use blockchain to save time and money and make a real impact in terms of both their profitability and their ability to influence how our culture consumes renewable energy.
Mark Fisher is a growth-focused marketing veteran with deep experience in both finance and technology. He has led and worked on high-performing marketing teams at some of the most successful companies in Silicon Valley. An entrepreneur at heart and a veteran of the performance marketing industry, he has created global brand strategy and marketing programs at Addepar, Nutanix and QuinStreet. Mark holds an MBA from The Fuqua School of Business at Duke University, as well as Bachelor of Arts degrees in International Studies and French from Duke University. He’s a fitness freak, recovering meat eater, part-time musician, full-time wine and tequila enthusiast, and husband and father. Follow Mark Twitter and contact him LinkedIn.