by Shawn Murphy and Michael Palmquist
Although many of the factors which make solar contracting complicated (such as varying utility and AHJ requirements) are not within your control, much of the complexity can be controlled by smart choices about the products you sell. Many residential solar contractors install too many different types of inverters and solar panels. This article looks at how simplifying your company’s product offerings can simplify your day-to-day operations and make your company more profitable.
When asked for the criteria a contractor uses for adding a new product to their offerings, contractors will typically refer to price, brand, technology, etc, but rarely include other critical factors. Furthermore, the number of different products offered for sale tends to expand over time which affects overhead and increases the probability of making mistakes. This blog post does not recommend any specific products – rather it looks at the advantages of simplification as well as practical methods to keep your product offerings in control. These techniques are most applicable to real world installers:
Real-World Example – Cost of Increased Complexity
Let’s look at a real-world example of how adding to the list of products you sell can affect your bottom line.
SolarCo is a local residential solar contractor that sells two different modules from the same manufacturer and a single brand of microinverters. The company installs the same racking system – with variations in the attachments (footings) based on the roof type. The company sells, designs, permits, installs and supports all systems in-house.
The company has recently lost several jobs to a competitor due to price, and so decides to add new, lower cost modules and central inverters to their offerings. The new modules have their own, proprietary racking system, so the company must now carry two different racking systems as well. The advantage of the new product offering is immediate and obvious – the company may be more successful bidding projects for which price is the primary concern. What is less obvious is the longer term, usually-hidden, cost associated with this new, more complicated product mix. Here is a partial list of costs associated with the expanded product offering:
- Sales Consultants: Consultants must now be able to design systems with both microinverters and central inverters. This may require using a string sizer on the central inverter website. Systems used for quoting must be updated and maintained for both types of systems. Revising systems to add/subtract modules may require changing inverters as well.
- Accounting: Administrative costs are increased by placing orders with multiple suppliers while volume leverage is reduced.
- Warehouse: More warehouse space is needed, and receiving/kitting efficiency goes down with larger numbers of products while the probability of kitting errors is increased. More time will be spent managing deliveries.
- Design/Permitting: Designers must now track the DC requirements for all AHJs in which they submit permits. Labeling requirements will now differ based on the inverter.
- Installation: Installers must learn to install and commission two different types of systems. They may need to carry twice as many bulk items, such as mid clamps and grounding lugs, on their truck. The probability of errors and missing parts increases.
- Support: Customer support must now interact with two different inverter monitoring sites and two different RMA processes.
Installers rarely account for the increased overhead cost incurred by adding equipment. Whereas the advantages of adding new equipment are immediate and obvious, the costs associated with increased complexity are longer-term and show up mostly as overhead. This complexity can lead to a feeling that things are out-of-control, and employees may have poor job satisfaction because of inevitable mistakes. Without proper accounting, job costing and project post-mortems, most local contractors never understand that many of the root causes of the issues they face on a daily basis are due to their product mix. The primary, and often only cost considered when selecting equipment is its price tag. However, in some cases that cheaper part can create significantly more work and cost for the business.
Choosing an Optimal Product Mix of Inverters, Modules, Racking & Balance of System
Now that we have explored some of the costs associated with having a larger mix of products, let’s look at some techniques for choosing the products you sell. Each of the components in a residential solar array have different characteristics that must be considered.
Choosing which inverter(s) to sell is the most important product decision. The inverter architecture is the crucial design element and affects all phases of sales and operations. Furthermore, inverter-based monitoring is the cornerstone of customer support. It is not possible to simplify your product offerings without deciding on a single inverter architecture/manufacturer and sticking with it over time.
When deciding on an inverter architecture/manufacturer, ensure that it:
- Supports all your residential jobs, including very small/large installations, roof/ground mount arrays if applicable and all modules you sell
- Minimizes disruptions caused by new, higher wattage modules which are periodically released
- Allows for easy revision of sold systems to add/subtract modules Offers the greatest flexibility in dealing with future code changes and utility requirements.
Once upon a time installers were closely identified by the modules they sold. Today modules are basically a commodity that are fairly uniform across manufacturers. No module is significantly more efficient or cheaper than other modules. Furthermore, solar module manufacturers can be subject to supply chain issues or may go out of business. For this reason, many local solar contractors sell modules from multiple manufacturers so that they always have a fall back option.
However, by following a few basic guidelines, companies can avoid selling modules from multiple manufacturers at the same time. In this case, simplification is based more on setting up systems correctly. Here are systems/process recommendations:
- Ensure that the interfaces for all modules are standard – in other words, changing modules does not affect any other systems
- Marketing materials and sales consultants can de-emphasize the solar panel manufacturers used
- Proposal tools and drawing packages should be developed to easily accommodate new modules and manufacturers
- The pricing structure should be easily maintained as module prices change.
These guidelines can enable a contractor to minimize disruptions caused by an existing manufacturer periodically phasing out old modules and introducing higher power ratings, and allowing the contractor to more easily switch module manufacturers quickly if needed.
Racking and Balance of Materials
When choosing a racking system and balance-of-system components, solar contractors should again aim to minimize the number of different components needed. The goal is to install all roof-mounted residential systems using the same components, with exceptions made for site conditions such as the roof type and electrical interconnection.
One way to minimize parts is to standardize on certain sizes, even if a smaller size could be used in some cases. For example, the electrical code may allow use of ½” EMT conduit for a single branch circuit, but must use ¾” EMT for two or more branch circuits. If you want to use the minimum allowable size, your trucks would need to carry a full inventory of parts for both conduit sizes. Since nothing disallows use of ¾” EMT for a single branch circuit, it significantly simplifies things to only use ¾” EMT for all installs.
Be wary of “integrated” systems that require racking that only works with certain modules. Another red flag is any integrated system in which a single component provides two different functions. For example an “integrated” solar roof tile which produces electricity and serves to waterproof the house. Do not adopt partial solutions that only work for a subset of projects. For example, a simplified grounding system should not be adopted if it is not approved for use in all AHJs in which you do business.
Techniques to Keep Control of Your Product Offering over Time
Even if you start with a simplified set of product offerings, you will likely face a variety of pressures over time to increase diversity and complexity of offerings.
For example, some customers may ask your sales consultants to match the modules and inverters specified by other companies in an effort to find the lowest cost system. Adding these additional products to your offerings can come with unexpected issues. Our recommendation is to stick to your product offerings, proposing your price for products which are similar (or better for some reason) than the products in their request.
Another pressure you might face is to take on installations for which your product mix is currently not suited, either due to added complexity or extra AHJ requirements. Accept that not all jobs can be quoted using your existing, simplified product mix, and be sure to explicitly call out these project limitations with your staff. For example, “Do not quote reverse tilt arrays,” etc.
Sometimes, companies make it too easy to add products. “The distributor said he could get me a good price on these inverters” is not a valid reason to add to your product mix. Establish criteria that must be met before adding new equipment, and get input from sales consultants, procurement, design, installation and support teams on how this new product will affect their jobs. Here are suggested minimum hurdles that must be met:
- This equipment meets a specific need that cannot be met by existing equipment
- This new product will allow us to retire other products. Look for opportunities to remove products from your offerings if they can no longer be justified or if they have been superseded by a new product. If you are no longer selling a product and it is not needed for service work, be sure to remove it from your product offering, sell or scrap extra material in your warehouse, etc.
- This product interfaces with our other hardware.Any required changes to other systems have been considered and accounted for.
Here are some other techniques:
- Choose an inverter architecture to use for all residential jobs and stick to it
- Avoid lead sources that pressure you to add complexity to your product mix and processes
- Do not adopt partial solutions that only work for a subset of your projects.
- Critically evaluate “integrated” or “proprietary” systems.
Don’t let the selection of your company’s product offerings be an afterthought. Carefully and thoughtfully selecting the right equipment can be the differentiating factor for the better of any contractor’s operation.