How Do Solar Contractors Make Money?

It is estimated that by 2024, 2.5% of all homes in the U.S. will have a solar installation. While that may not sound like a huge number to some, it’s a vast market to explore. To get to that number, solar companies not only have to cover a huge network, but they have to get quite a few contracts signed as well. This is where sales come in, and for this reason, a career in solar sales may be an attractive one to pursue in the years to come.

Understanding How Solar Energy Companies Make Money

If you are confused about how solar contractors make money then let us guide you. It may seem like the solar companies that sell and install solar panels for you aren’t gaining any profit but that is not the case. Solar companies usually follow a long-term plan since they are well aware that there isn't much profit with the initial purchase and installation of the panels. Typically there are four ways the companies make a profit: installation, investors, tax credits, and non-existence maintenance costs.

Installation

The primary and the most obvious way of making money as a solar company is by installing solar panels. The profit margin is quite low but it does exist, which is enough to keep the company afloat. Since the solar company recognizes that this is their primary earning, they focus more on making a strong connection with the clients. And that is because there is a high chance that someone in the client’s family and friend group might get inspired by the solar panels and want them installed at their residence as well. If that is the case, then building a strong connection with the client is an indirect way to promote the solar company and its services. The client's recommendation serves both as an endorsement and a testimonial to potential clients.

Investors

The second way solar contractors make money is when their company offers a stream of revenue at a fixed percentage to their investors. If the company claims that the investors will get a 7% guaranteed return on their investment in the next couple of years, while making at least 10% on the investment, then both sides are at an advantage. The investor gets a guaranteed return and the company keeps the excess that is produced on that investment.

Tax Credit

If a homeowner gets solar panels installed, the government will give you 30% of the amount you spend on the solar panel as "tax rebates" because green energy is not only appreciated but also encouraged by the government. The solar company keeps this tax credit or rebate and a majority of the time, the credit can amount to quite a lot of money. Imagine if you spend 30,000 dollars on a solar panel system which includes the installation costs, you can get approximately 9,000 dollars back as a tax rebate!

Non-existence Maintenance Costs

Panels that are properly installed don't need a lot of maintenance and upkeep which means that you don't really have to pay your employees to maintain the solar panels since there is no maintenance required at all! This means that once they set up their solar farms, they can provide more electricity to clients and other companies that are interested in buying solar energy while they face little to no maintenance and upkeep costs. And if the company just puts in a few hours a week to clean the panels and to check if all of the equipment is functioning properly, the company can continue making a profit.

How Much Money Do Solar Panel Companies Make?

If you have understood how solar contractors make money, then let us move on to how much they can make. When the customer signs up for solar energy with any company, they usually pay for the installation of the solar panels, connecting it to the property as well as the solar panels themselves. All of this combined can cost anywhere between 15,000 to 50,000 dollars depending on how big the property is.

Some companies also charge their customers a monthly bill, which is much lower than the original electricity bill and it can cost anywhere between 25 to 200 dollars, again depending on how many solar panels are installed and how big the property is. Plus if you take into account the tax returns, the investments, and the non-existence maintenance costs, solar panel companies can make quite a lot of profit. It is estimated that for every installation in which the client pays upfront, the company can make at least 5,000 to 10,000 dollars.

A lot of solar companies have also started excepting credit cards which can cost 3 to 3.5% of the sale so that the money is transferred to the solar company. If you are buying a solar installation worth 20,000 then you can expect to spend at least 600 dollars on the credit card cost.

8 Factors That Determine How Much Money Solar Panel Companies Make

Since 2008, hundreds of thousands of solar panels have popped up across the country as an increasing number of Americans choose to power their daily lives with the sun’s energy. Thanks in part to the Solar Energy Technologies Office's investments, the cost of going solar goes down every year. You may be considering the option of adding a solar energy system to your home’s roof or finding another way to harness the sun’s energy. While there’s no one-size-fits-all solar solution, here are some resources that can help you figure out what’s best for you. [1]

If you are wondering how do solar contractors make money, then you first have to understand the 8 factors that determine how much money a solar company can make.

Investors

The first one is investors and just like we have stated above, a solar company can make a profit off the excess revenue that the initial investment pulls in. So the solar company gives a fixed percentage to the investor and keeps the rest of the revenue.

Product and Service Mix

There is a wide variety of solar panels in the market and they range from 3 to 300 watts and the factory price and mark-up of each type of panel vary. So aside from services, the solar panel company can also sell solar products such as solar attic fans, solar PV, solar pumps, solar lights, and even solar thermal systems. This is another prominent way some solar companies in the US make money.

Tax Credits

This is another way how solar panel contractors and companies make money. The tax credit the solar company gets back from the initial money that went into buying and setting up the solar panels is called a tax credit. This is put into place so that the government can encourage more people to convert to green energy.

Payment Options

People pay either by using checks or a credit card. If the client uses a credit card to pay for the purchase and installation of solar lights then they will have to pay an additional amount of 3 to 3.5% for that money to be transferred over to the solar company. This means that if a company is charging 30,000 dollars for a solar installation, you will have to pay an additional amount of 900 dollars when you pay with a credit card.

Business Location

The demand for solar energy and the location of your site significantly affect how much your business makes. The weather of the state you are setting up your company in also has a lot of impact because if the customers see how "sunny" the city is, they are more likely to switch to solar energy, especially when compared to a city where it rains a lot.

Market Demand

Renewable energy is a fast-growing field and while a lot of people want to make the switch, they don't have the resources to fund it. So for a solar business to work, it has to be situated in an area where people can afford to make the switch.

Competition

This is a major factor that can influence how much a solar company can make. If there are more solar companies then the cost of installation will be lower because of competitive pricing. And if your company is already behind in the solar game, then you will have to lower prices even more to make room for your company in the industry.

Business Structure and Management

Obviously, the performance of the installation team has a major role in the success of the company. A solar company cannot flourish in the industry if they don't have dedicated and talented workers who strive to work hard. This is why if you are planning on starting a solar business, the first thing you must do is find licensed and trained solar technicians.

How Much Does It Cost To Start A Solar Business?

Now that we have talked about how do solar contractors make money, let's talk about how much you will need to start your very own solar business. Considering how much a startup costs, we can estimate that to start your own solar panel business, you will need at least 90,000 to 290,000 dollars, depending on how big the startup is and what location you have chosen for it. You can either dip into your savings to start this business or you can look for a loan or an investor. Both are relatively easy to find especially because green and renewable energy is a big game changer and is becoming increasingly popular particularly in the US and UK.

There are quite a few things you need to know if you want to succeed as a solar company and one of them is hiring the best employees. To make a business successful, you need to hire the best solar experts since it will give you an edge over other startup solar companies. At the very least, you should have 5 employees when you start your business: the engineer or technician who excels at fieldwork, an accountant, and marketers. We are aware that hiring experienced and trained solar experts will cost you quite a bit of money because you have to pay them a competitive salary to convince them to choose your start-up over an established company, but this will definitely work out to your benefit once your company is up and running.

The third thing you have to focus on and invest in is marketing. Green energy is becoming popular but it is still relatively unknown which means that some prominent solar companies are leading the solar game right now and the only way to catch up to them is by implementing efficient marketing strategies. And the best marketing takes place on social media or through targeted ads.

1.      How do solar companies make a profit?

There are several ways a solar company can profit and this can include installation, tax credit, investors, selling items that are related to solar energy such as solar fans, payment options, and business location.

2.      How much profit do solar installers make?

The primary source of profit for the solar installers is actually installing the solar panels. While the profit margin is not necessarily huge, it is enough to amount to 35,000 to 45,000 dollars a year. In fact, the highest-paid 25% of solar contractors made 55,680 dollars in 2019 while the lowest-paid 25% made 36,310 dollars.

3.      Is the solar business profitable?

The solar business is one of the most profitable businesses in today's time when green energy is becoming mainstream and people who can afford it are already switching to it. Typically you can expect to gain 5,000 to 10,000 dollars per job and if you have a big industrial contract, then you can earn hundreds of thousands of dollars.

References

1.     Homeowner’s Guide to Going Solar

https://www.energy.gov/eere/solar/homeowners-guide-going-solar