Why Unit Economics Matter for Solar Installers: A Guide to Better Profits

Solar energy is booming over the long term, but it’s not always easy to know how much profit you’re really making on each job. With so many costs - equipment, labor, marketing, etc. - it can be tough to see where you’re making or losing money.

That’s why unit economics is so important. It helps solar installers break down costs and profits on a per-job basis. This way, you can make better decisions about pricing, operations, and growth.

What is Unit Economics?

In simple terms, unit economics looks at how much money you make (or lose) on each job. It shows you the exact costs and revenue for each solar installation.

We’d measure this as Gross Margin per Watt installed - that way, all your projects get placed on a level playing field.

Many people think unit economics is only for finance experts, but it’s actually a great tool for everyone in the business. By understanding your costs and profits on a per-job level, you can see which types of projects are the most profitable.

Key Questions Unit Economics Can Answer

To get the most from unit economics, solar installers should dig deep and ask questions that help them uncover hidden opportunities for growth or areas that need improvement. Here are some key questions that can lead to actionable insights:

• How do project costs break down across different types of projects? Do you see unexpected labor or admin costs in certain regions, counties or states? Understanding where higher and lower project costs are coming from helps in pricing and planning.
• Do different types of projects have consistently higher margins? Pivoting your view of gross margin per watt based on different project criteria gives you insight into which factors or combination of factors typically lead to better margins.
• Which types of installations see the highest labor costs? Are there specific installation types or project sizes that are more labor-intensive? By identifying these trends, you can explore process improvements or targeted training for installation teams to reduce time on-site.
• How do material costs affect profitability? If material costs are higher for certain types of projects, this data gives you the insight you need to know when to look into bulk purchasing or alternative suppliers. Analyzing BOM cost per watt can drive you to find comparable but cheaper materials you could use without compromising quality.
• What do our best-performing projects have in common? Do particular project managers generate much more profit than others? Identifying patterns in successful projects can help replicate this success across other installations.

How Unit Economics Can Help Your Business

Using unit economics can make your solar business more efficient. Here’s how:

1. Resource Allocation By understanding which jobs bring in the most profit, you can focus your resources on the best projects. For example, if commercial jobs are more profitable, you might put more effort into winning those contracts.
2. Streamlining Operations Unit economics can show you where your operations need improvement. If labor costs are too high, maybe there are ways to speed up installations or better train your crew.
3. Planning for Growth When you know your per-job profit, you can predict how scaling up will affect your business. This way, you can grow without risking financial losses.
4. Find Best Practices Examples If there are particular project managers or salespeople who produce the most profitable jobs, they could teach the rest of your team what they do. Perhaps they have great ways to manage the operations of an install, or better ways to qualify their prospects.

Overcoming Common Challenges in Solar Installations

The solar installation business has some unique challenges. For example, projects often face delays due to permits, weather, or unexpected technical issues. These delays can increase costs and reduce profits.

By using unit economics, you can analyze how often these challenges occur and how they impact each job. With this information, you can plan for potential delays by building extra time and costs into your pricing model.

For instance, if delays typically add 5% to the cost of an installation, you can adjust pricing to cover these costs upfront. This helps protect your profits when unexpected issues arise.

Why You Shouldn’t Ignore Unit Economics

It’s easy to think of unit economics as just a “finance thing.” But for solar installers, it’s a powerful tool that goes beyond numbers. It helps you:

• Set the right prices
• Run a more efficient business
• Find the best ways to get new customers
• Plan for profitable growth

In today’s solar market, knowing your unit economics is a minimum requirement. While the market is expanding, competitors are becoming more sophisticated, and profits are being drained away from all angles.

By understanding the costs and profits of each job, you can make better choices, avoid mistakes, and grow your business successfully.

Unit economics isn’t just about finances—it’s about making your solar business stronger and more profitable.?

Ready to take control of your costs? Get in touch if you’d like to see how SolarSuccess can help you get the best understanding of your business you’ve ever seen, while having real-time project-cash flow visibility and rolling all your systems into one.