By Mark Fisher, VP of marketing, Paystand
In 2017, solar energy made up only 11% of total U.S. renewable energy generation; however, according to the Center for Climate and Energy Solutions, that number is expected to grow to 48% by 2050. While it’s clear that the industry is growing rapidly and is continuing to make an impact on consumers and the environment, solar companies themselves are running into a significant problem: most solar business models have razor-thin margins, and thus, it’s challenging to gain meaningful ROI in the long run. As a result, solar companies tend to look for any way they can possibly get a leg up in the market — making competition in this industry intense and cutthroat.
Let’s take a look at this a little more closely. If you’re a leader in solar energy, it’s no secret that your margins have a tendency to work against you. For most solar companies, average margins fall somewhere between 8 and 10%, meaning that even if you land a prized project, your profit is usually negligible after you finish paying out your team, installation crew, overhead costs and any equipment that’s needed for the process.
The easy answer for most companies is to start pursuing more commercial projects because they tend to promise more revenue than individual residential installations alone. However, when it comes to boosting ROI in the long run, this definitely isn’t the answer. Increased DSO and extended sales cycles are inherently tied to commercial projects, and these factors inevitably lead to difficulties when it comes to collections and other accounts receivable (AR) processes; they also make it harder for companies to forecast their revenue and effectively plan for the future.
Many solar companies also try to gain an advantage by pouring more money into online ads and email marketing campaigns. But when every company in the industry is trying to acquire customers in the same way, it becomes a race to the bottom. The most nimble companies know that when it comes to gaining the upper hand, they have to get creative.
But that’s the thing about innovation — often, when you’re trying to break the mold, you end up shifting the whole playing field.
Today, significant innovation in the solar industry can be found in the form of blockchain technology — a hallmark of the decentralized finance (DeFi) movement. While both blockchain and DeFi might seem like buzzwords or just passing trends, they actually offer solar companies powerful tools when it comes to creating new B2B payment solutions and automated AR processes. In fact, the right technology can eliminate transaction fees, speed up time to cash, and give solar companies the ability to boost their margins on every single project.
But how will these innovations more specifically impact solar energy companies moving forward? And how will they allow companies to save more time and money across the board?
What is blockchain technology?
Before getting into the precise 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 like this: instead of storing information in a single, centralized location, information on the blockchain is copied and shared among a network of many computers. Every time information changes or is added to the network, every computer in the network updates to mirror that change. Therefore, human intermediaries are no longer required to approve transactions since this decentralized system offers an even more secure way to make payments traceable, immutable and instant.
This technology is the blueprint for much of the innovation that can happen in AR processes, speeding up the enterprise cash cycle, and delivering better methods for collecting revenue. It can even enable new ways to accept payments altogether by offering alternatives that allow businesses to break free from the legacy payment network and the punitive transaction fees that are tied to it.
How blockchain is making all the difference for 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 have their own unique set of problems. Every year, businesses in the US spend almost $160 billion on paper-heavy processes like sending and receiving both invoices and payments. Paper checks in particular lead to extended DSO, added costs, increased risks of bounced and late payments, and extra overhead for accounting processes. On the other hand, credit cards can cost you over 3% of your revenue. For example, if you’re charging a customer $30,000 for an installation project, you’ll lose $900 of that income — just to ensure that the payment properly changes hands. And, as interchange rates are expected to rise, you can also expect to keep losing more of your revenue to the card networks.
While both of these payment pitfalls might seem like a necessary evil, they cause unnecessary harm to your solar company. That’s where blockchain and other fintech innovations come into play. Companies like Paystand have created next-gen payment solutions that eliminate the need for paper checks or credit cards altogether; instead, you can trade transaction fees for a flat-rate, monthly subscription that gives you access to a bank-to-bank payment network. We’ve even built a blockchain specifically for enterprise that assures every transaction made over our system.
“We use all kinds of software technology to help our company operate efficiently and reduce soft costs,” said Gregory Sachs, COO of EmPower Solar. “From drones to marketing automation to our client payment systems, software like Paystand helps us provide a superior customer experience by allowing customers to pay their project milestones with a simple click. Fintech solutions like this help us save on overhead, time, and customer communications. This in turn allows us to provide an amazing customer experience and pass savings onto clients so we are more competitive in the marketplace.”
It’s clear that blockchain-enabled offerings can help companies adopt new, less obvious solutions that ultimately yield big results when it comes to improving margins, the customer experience and ROI. A better payments 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 more control over their finance departments where it matters most.
There’s no question that blockchain will allow solar companies to gain access to a bright future — one where they have the opportunity to treat money like software and put their revenue on autopilot.
While there is room for more than one solar company to win in the market, there will definitely be a meaningful difference between the companies that make the choice to adopt new blockchain technologies and those that remain saddled to the legacy payment system. Undoubtedly, future-facing solar companies will use blockchain to save time and money and will drive real impact in terms of both their profitability and their capacity to influence how our culture consumes renewable energy.
Mark Fisher is a growth-oriented marketing veteran with deep experience in both finance and technology. He has led and worked on high-performing marketing teams at some of Silicon Valley’s most successful companies. As 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 is a fitness nut, recovering meat-eater, part-time musician, full-time wine and tequila lover, and husband and father. Follow Mark on Twitter and connect with him on LinkedIn.