Green mechanical contractors need to rethink how they go about selling energy- and water-efficiency improvements to commercial building owners. Completely.
I recently had the pleasure of hearing Mark Jewell, president of the Energy Efficiency Funding Group, speak at the Mechanical Service Contractors of America conference in Carlsbad, Calif. He’s the consultant who helped the EPA write the specs for Energy Star for Commercial Real Estate. Jewell received his B.S. in Economics from The Wharton School of Finance and Commerce at the University of Pennsylvania, and he knows as much about financing energy efficiency improvements as anyone in the country.
He says we’ve been doing it all wrong.
Jewell gave MSCA attendees a 90-minute taste of his 48-hour training course. Energy efficiency products and services all require effective selling, he says, and, while they are often promoted, they are rarely sold.
Contractors have long been told not to sell simple payback because it’s so often more than three years. Return on Investment is often said to be better. But Jewell pooh-poohs ROI and even another formula, internal rate of return.
What sales professionals have to do, Jewell says, is connect the dots in the heads of customers in larger ways than just reducing their utility bills. For example, in the K-12 school market, school administrators get state money based on daily attendance and, while it varies from place to place, it’s worth about $40 per student per day. Energy retrofits that improve comfort and indoor environmental quality have a proven track record of attracting and keeping people in buildings. If a school has 1,000 students and attendance increases by 5%, that would mean $2,000 a day or $400,000 a year in increased state aid for that school. That connects the dots in the mind of the school administrator. The reduction in utility bills becomes secondary.
These sales tactics are industry specific because a CEO with a corporate campus has different concerns than a grocery chain operator who has different concerns from a multi-family housing landlord.
The CEO with a corporate campus may be spending $2 per square foot on utilities. Even if you can cut the bill in half, that’s $1 a square foot. It’s a line item so small that it doesn’t attract the CEO’s attention. The company, however, may be spending $200 per square foot on personnel. What if you can improve productivity by 1%? By 5%? It’s usually even more. A retrofit at Lockheed improved productivity by 15% and reduced absenteeism by 15%.
Sounds like we’ve been quoting the wrong numbers to customers.
Unlike the CEO, a landlord has different concerns. Utilities are often 30% of the P&L for a landlord, so the reduction in utility bills is important. But there’s more. If energy costs to tenants go down, the landlord can increase the base rent. The improvements lower the landlord’s share of operating expenses. His vacancy rate goes down. His asset value goes up so the building has a higher resale value.
If you save $1 at a hospital, Jewell says, it’s the equivalent of getting $20 in new revenue. If you cut a grocery store’s energy bill by 25% — which Jewell says is easy since most of them are energy hogs — it’s the equivalent of increasing sales by $59 per square foot.
Laboratories run on research grants. Saving $350,000 by reining in an out-of-control fume hood means that's one less grant that the lab director has to get.
Other customers have different drivers. Some customers are buying carbon offsets and need to reduce their carbon footprint. Some customers need to make improvements for regulatory compliance. Some want to emulate the best practices of similar facilities. Others want to avoid obsolescence. Sometimes they want to avoid budget cuts or save a staffer’s job.
Sell the user interface. Jewell pointed out that new car customers rarely look under the hood anymore. They actually want to know how their phone connects to the car and if the car parallel parks itself. Same with a building. Don’t talk about fan speeds or controls. Sell the user interface.
Sometimes efficiency sales have unexpected results. Jewell related that a dairy barn switched from fluorescent lights to LEDs. It turns out the cows never liked the fluorescents. After the lighting change-out, milk production increased 6% and more than paid for the retrofit.
Do your homework on your prospects so you can properly present the financials that are most important to that particular audience. Connect the dots for them.