Do you want to know how much money solar industries make yearly? If YES, here are 8 factors that determine the income & profit margin on a solar panel.
The primary job of a solar panel business is to conduct on-site surveys of potential installations, create a solar plan for the location, work with the owner on financing and install the units.
After the installation, maintenance positions within the company offer support for the new owners, repairing and maintaining panels to ensure greatest productivity and return on the investment.
With the growing awareness on the implication of fossil fuels and the greater benefits of green energy, solar energy and other renewable means of power generation are beginning to gather enormous momentum.
How Much Does It Cost to Start a Solar Business?
For a solar panel business to succeed and generate substantial income, it requires a structured staff with skills in construction, electrical, and basic understanding of science and solar energy.
Starting this business, especially in the United States is not as easy as it might seem, especially since it requires a significant investment in order to obtain the first shipment of panels.
An entrepreneur looking at franchise opportunities would require a minimum payment of around $100,000 to $350,000. Without a franchise, the investment might rise to $500,000, to enable the business to initially market, hire a crew, and perform installations.
Due to the rapidly evolving solar technologies, solar energy is now available to most homeowners with a clear roof line. Homeowner Associations sometimes collaborate for entire neighbourhood solar installations. Businesses small and large are now joining solar to their energy programs and may be ready to invest in sizable rooftops or field farms.
How Do Solar Companies Make Money
Nonetheless whether the solar panel business is a franchise or wholesaler they all make money through the successful installation of solar units.
Some leasing programs generate regular income by charging their customers a monthly bill, which includes the cost of the panel installation and any extra power the customers are using from the grid.
Aside that, customer mostly pay the retail rate upfront for their panels and appropriate labour costs for connecting their panels to their home and the power grid. According to reports, a residential installation can be priced anywhere from $15,000 to $50,000, depending on the size and type of panels installed.
Leases with a zero dollar down payment can run anywhere between $25 – $200 monthly depending on the type of client and the size of the installation.
To accurately state the exact amount a solar panel business can make in the United States, there are key factors to consider. These factors include:
8 Factors That Determine How Much Money Solar Panel Companies Make
1. Investors
Some solar panel businesses in the country make money through offering their investors a stream of revenue at a fixed percentage. For instance, if someone invests in the company and is told that they will get a guaranteed 8 percent return on their investment over the next few years, the company can make money if they are making more than that on the investment.
If the company makes 10 percent on that investment, giving them a 32 percent return on the investment, while still giving their investors a great return on their money, it makes everyone happy.
2. Product and Service Mix
There are different types of solar panels from three to three hundred watts and the price and mark-up of each varies accordingly. There are also lots of solar products a solar panel business can sell in the United States to make more revenue.
For example, solar attic fans, solar PV, solar thermal systems, solar pumps, solar lights, even solar chargers and many other solar products.
3. Tax Credits
Another way some solar panel businesses in the United States make money is through tax credits. These are put into place to help people switch over to solar, but they also allow the company to write off a large number of things.
This allows them to have lower expenses, get more people signing up, and in many cases to get a credit for the services that they provide as well. Note that this applies to situations where they are using their own panels to provide electricity to customers, getting the tax credits for their own panels.
4. Payment Options
Indeed most solar companies receive their money in two ways, checks or credit cards. Checks are often the standard with commercial clients, but it extends a company’s DSO, increases risks of bounced & late payments, and adds time and overhead with the accounting team to manually reconcile the payments with the business financial software. Hence, lots of solar businesses have begun accepting credit cards, to increase convenience for customers.
In the United States, banks and card networks are taking advantage of these large transactions and often charge 3-3.5 percent of the sale just for the money to exchange hands. For instance, for an average solar installation of $20,000 it’s not new to see the credit card cost to be upwards of $600.
In fact, it’s not new to see annual processing bills in thousands of dollars for a mid market solar company. With industry averages of 8-10 percent this hardly seems fair – nor does it help the profit margin of the business.
5. Business Location
Variation in size, scope and buoyancy of demand in local markets is likely to affect growth opportunities, even in the solar market. In addition, variation in the cost and availability of labour, premises and services are also influential to the profit a solar panel business can make.
The economics of solar panel installation are also dependent on the resource potential available for energy production. The more potential there is for energy production, the faster the payback period is for the initial investment. In this business, consumers’ adoption behaviour might likely be influenced by how “sunny” their state is.
6. Market Demand
Another factor that strongly determines the profitability of a solar panel business is the demand in the market. Although the growing awareness of renewable energy is constantly attracting people to invest in Solar panels, not all of them have the financial resource to pay for the installation and services.
For product sales and simultaneously profits to be higher, a solar panel business needs to be in location with above average income residents, who can afford to install solar panels for their homes or businesses.
7. Competition
One of the major factors that can effectively influence the level of profitability of a solar panel business is the degree of competition in the market. If there is a lot of competition in the market, then the profit of these installation companies will naturally be lower.
And, since competition tends to be fierce especially from the pre-existing market leaders, it will take extra effort to carve a niche for any new entrant in the business.
8. Business Structure and Management
How the solar panel business is structured, its goals and the performance of its management team, will largely impact the successful development of the business. A solar panel company cannot flourish without a strong team of managers and technicians who strive hard to push it forward.
The amount of profit a solar panel business can make tends to in many ways depend on the business management and its long-term growth. Most successful solar panel business owner in the industry have solid understanding of marketing and use it to the greatest effect, generating new contracts for their company and brand.
They also show shrewd personnel skills, taking the time to hire reputable technicians with all the proper licensing and training. Good managerial skills in this business tend to keep the crews busy, completing jobs on time as promised, while keeping payroll expenses under control.
In conclusion, the amount of income a solar panel business generates in the United States will depend on the above factors. For companies that only install panels for customers who pay all at once, they can see profits of $5,000 to $10,000 per job. However, this requires a steady stream of new contracts.
Estimated Profit Margin for Solar Panel Businesses
As more people, cities, and states turn to renewable energy sources, the solar panel industry is enjoying a healthy growth of 15 percent annually, according to reliable statistics. Coupled with ongoing technological improvements and reducing costs of materials, solar power is becoming more affordable and appealing to both residential and commercial clients.
However, even if a solar panel business leases solar panels, their profit will depend entirely on the number of panels they have installed. A typical profit margin in this business is about 6 percent per year, but this requires a long-term investment strategy and a total consideration of the factors mentioned above.