The million £ question: How can ESCOs close deals faster.
In the face of an increasingly crowded energy and tech space, ESCOs everywhere are faced with the challenge of making energy efficiency both attractive and accessible to end-users. Ask just about any ESCO: “sales” is a four-letter word, deal closure an uphill battle.
Indeed, a recent study by BEIS shows that the top barriers to uptake of energy efficiency in the UK remain a lack of end-user trust and energy efficiency being a low (or non-existent) priority for most business owners whose energy consumption is nevertheless substantial. Through our own experience as market facilitators between ESCOs and finance, Joule Assets estimates that the sales cycle for the majority of ESCOs across Europe is in the 9-18 month range. Conclusion: the struggle to sell energy efficiency is real.
However, there is good news: successful ESCO business models have been implemented and proven in Europe and in the US. Here are three key lessons Joule has learned through our experience from both the ESCO and financier perspective:
- Remember that psychology is everything
Clients in this market are typically SME business owners who are typically looking to spend their limited resources on new hires, marketing, or improving their own processes. Profit margins, building a strong team and reputation, are their top priorities, whereas upgrading HVAC or lighting, for example, often comes up only at the end of the equipment life cycle.
Considering this, energy performance should never be about the engineering, the tech, not even energy savings – it should be about empowering the customer to improve their bottom line, to access new revenues for business processes and increase the comfort and productivity of their building at no cost. This is the message that needs to be driven home and demonstrated to the client.
- Define the contractual structure before engaging customers
The question of following a model whereby upfront costs are covered by the ESCO, such as an Energy Performance Contract (EPC), is all too often left until after the building audit has been carried out and concrete Energy Conservation Measures (ECMs) have been proposed.
While it is understandable that companies offering energy efficiency services have uncertainty about testing these models, the lack of contractual clarity from the outset ultimately does them a disservice, leading to confusing sales messages: is the project carried out measure by measure or all at once, who takes care or the financing, is the finance included, is the M&V included, etc. Approaching things in this manner is very likely to backfire.
ESCOs should therefore offer a clear and simple, repeatable contract structure that incentivizes the customer to engage in a project, and this should be offered at the outset of the proposition as part of the complete sales message. In this vein, performance-based contracting can be extremely effective in boosting the attractiveness of energy efficiency to new customers, removing the financial burden from the client and promising full site management.
- Creating client trust pays
Creating client trust in energy efficiency technology can be challenging, especially for complex projects that combine several ECMs. How can the client know that the proposed measures are the best ones, that the expected savings have been calculated correctly and will be achieved, and that the technology will work efficiently over the long term? This is particularly important for performance-based contracts whose financial model is tied to the guaranteed future savings.
This is where the input of a third-party expert providing independent due diligence and a performance insurance quotation can give an ESCO an edge over the competition. Using insurance, service providers can demonstrate that they both have a risk mitigation strategy in place and independent backing.
Joule Assets has capitalized on third party financial analysis and energy efficiency insurance to build its business in both the US and Europe. For the ESCO, specialized insurance can provide protection for all aspects of the project, ranging from material damage (equipment breakdown) of the installed systems, to business interruption (protecting against loss of revenue in the event of equipment failure). The final key element is the asset performance insurance covering a shortfall in energy savings, which puts all stakeholders in a project – financial, client, and ESCO – at ease.
However, even if insurance is not used in the end, the ESCO can benefit from independent project verification from a due diligence provider.
In sum: ESCOs must be sales-oriented to succeed – shortening the sales cycle is key. ESCOs that come with a strong and defined sales package, including the deal, insurance and finance – backed by third party analysis – are more likely to gain the respect and trust of a client than those that go it alone.
The industry is freeing revenue spent today on energy, which could be placed in job creation and growth. This can be independently proven. The opportunity and technology are there – success depends on sales.
Joule Assets are hosting the webinar “Improving the sales cycle – How can ESCOs close deals faster?” – sign up here.
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 The Non-Domestic Energy Efficiency Services Market. BEIS, 2018.