Surveying the current state of his market, Phil Rose, president of Milwaukee-based Roman Electric Co. Inc., painted a not-so-rosy picture. “Most of the data that we rely on shows a 50–60 percent decrease in the construction of new commercial and industrial facilities over the last three years, which means our overall market is less than half of what it used to be,” he said. “In addition, a slightly smaller pool of contractors has intensified the competition for each project, driving down margins in the open contracting markets. What’s worse is that no one is predicting relief any time soon. The best-case scenario is 1–2 percent growth from our current levels over the next two to three years, which is not especially encouraging.”
Fifteen hundred miles away, Stan Lazarian, president of Electric Service & Supply Co. (ESSCO), a 65-year-old family business based in Pasadena, Calif., laments a similar market.
“Commercial work has been thin out here for the last couple of years; there hasn’t been a lot of activity, period,” he said. “Some contractors are going out of business or have elected to retire early. There’s a lot of money being lost.”
Rose and Lazarian aren’t alone. Contractors nationwide are feeling the fallout from a tight economy in the throes of sluggish post-recession recession growth, high unemployment and the legislative stalemates often associated with election years. However, experts confirm that opportunities definitely abound for contractors who participate in the energy-efficient upgrade market.
Help on the horizon
“Energy-efficiency projects are incentivized in almost every state in the country,” said Rose, whose third-generation family--owned, full-service electrical contracting firm has been operating in southeast Wisconsin since 1929. “In addition, significant federal and state tax incentives remain in place today. With that financial climate, we’ve found the energy-efficiency market to be very inviting, both in terms of margin and growth opportunities.”
“Incentives for energy-efficient commercial lighting now cover nearly 80 percent of the U.S., a 10 percent increase from a year ago and an over 60 percent increase from 2009,” said Leendert Enthoven, president of BriteSwitch, a Princeton, N.J.-based company that specializes in managing and securing rebates, tax incentives and other financial rewards (primarily in the lighting arena) for commercial properties located in the United States.
Supplemented by stimulus funds from the American Reinvestment and Recovery Act (ARRA) and state loans and grants earmarked for energy-efficiency initiatives, a broad range of financial incentives are available to help end-users offset some of the financial burden associated with upgrades and assist contractors in securing these lucrative projects.
Rose confirmed that lighting is the low-hanging fruit today, and David Morales, Northeast operations manager for the electrical contracting division of Texas-based Facility Solutions Group (FSG), a national provider of electrical products, services and energy management solutions, agreed.
“Lighting technologies are among those making the fastest progress in today’s upgrade market,” Morales said. “We’re definitely finding induction, LED lighting and lighting control technology to be popular solutions [that] meet end-user performance and cost-saving objectives.”
After lighting, other popular sources of energy savings that end-users are increasingly choosing to help reduce operating costs and improve system quality include energy-efficient motors; variable frequency drives; heating, ventilating and air conditioning (HVAC); and building envelope technologies. And renewable-energy technologies represent yet another promising opportunity for contractors.
“Solar’s been big in California, which is why we got into solar and photovoltaic technology over the past 10–15 years, but it’s now an opportunity that’s growing by leaps and bounds all over the country,” Lazarian said.
Wind generation technology remains up-and-coming. And, “in the years to come, we can also expect to see increasing demand for electric vehicle charging stations as the electric car market emerges,” Morales said.
Overall, said Roman Electric’s Rose, “renewable energy and energy efficiency are two sides of the same coin. Both reduce dependence on our limited supply of fossil-fueled electricity. Even though the majority of utility-scale renewable-energy projects may be available only to the largest contractors today, we’re seeing several small-to-medium contractors taking advantage of available federal, state and utility incentives to provide renewable-energy projects with very attractive ROIs.”
Structuring for success
Industry experts agree that, for many contractors, success in today’s lucrative upgrade market involves a change in the way they’ve traditionally done business.
“Many electrical contractors are used to approaching their business opportunities through traditional channels—-relationships with general contractors and existing businesses that they service. We aren’t used to knocking on doors. And in most cases where we have direct business relationships, the relationship is usually with facilities people,” Rose said.
“Many contractors love the pipe and wire jobs and often stick to what they know,” FSG’s Morales said, “but in this economy, these types of jobs have been on the decline and this approach has definitely become ‘old school’.Today, it’s not about being a great pipe bender and securing margins on pipe and wire jobs; it’s about having great lighting auditors and techs on staff to be able to drive a ‘demand sale’ and help customers achieve true energy savings. Contractors will need to adapt to a new business model to remain competitive in this business environment.”
At ESSCO, Lazarian has pursued that path to its natural conclusion.
“For a lot of us, our method of getting work was to search out projects that the end-user had already decided to do and then get to the front of the line to be selected to do that work,” he said. “At ESSCO, we realized we didn’t want to be looking in the rear-view mirror anymore and decided to launch an effort to sell energy efficiency directly to building owners. We recently hired and trained someone to generate leads for us through an offer of free energy audits.”
“We had to rethink the way we worked—from the old ‘bid job, get job, secure contract, and start’ mentality to a more energy-solutions approach, and the sales cycle on these projects is a lot slower,” Lazarian said. “But, as we saw it, energy solutions selling was a way to change the trajectory of the business instead of relying on negative variables like the state of the economy to dictate our future.”
Tips for the taking
Our experts offered a number of tips to help contractors capitalize on today’s upgrade opportunities and secure their share of this active, growth market.
• Pursue dedicated resources: “You need a dedicated salesman to generate leads, which is not the same as an estimator,” Lazarian said.
Roman Electric’s Rose said, “You definitely need to develop a qualified sales staff, a team that understands that it may take 19 ‘no’s’ before they get a ‘yes.’’’
Both agree that training in financial analysis, energy-efficient technologies, and lighting design are a plus, though Lazarian said that these specialists don’t need to come from the electrical industry and what’s more important is that they have strong sales skills. Lazarian also noted that pursuit of a successful demand-selling business requires a full commitment.
“Many contractors are leery of doing what it takes to offer full service in this arm of the business and try to cover this capability in an inexpensive way. If you want results, you have to accept and commit to the totality of this investment,” he said.
• Speak the language of business: According to Rose, “We may have a better product that costs less and offers more value to our customer, but if we can’t speak the financial language required to sell the job, then we’ll lose projects every day to companies with inferior products and higher costs that know how to talk to decision-makers.”
Rose recommended that a contractor or his team pursue training in financial basics such as return on investment, payback, cash flow analysis, and financing options to help relate the benefits of upgrade projects to decision-makers in measures they understand.
“It requires a change in our sales approach too,” Rose said. “For instance, we’ve lost a few jobs in the past because, while we were talking to our facilities contacts about an expensive project for which they didn’t have money budgeted, our competitors were talking to the CFO about how much money he would save by undertaking an upgrade project. It’s about getting to the right person with the righted, compelling message.”
Lazarian concurred with this approach.
“You have to understand the financial impact of upgrades because that’s how you sell them, not on the technical details,” he said.
• Bundle projects: Lighting is a lower ticket investment that many businesses are willing to make, but bundling more expensive upgrades with lighting projects can often lead to a bigger project for the contractor as well as benefit the end-user in the form of greater energy savings.
“For example, a customer with a payback tolerance of four years may want a solar PV system that costs $30,000, but has an eight-year payback,” Rose said. “By combining that PV project with another $60,000 energy-efficiency project, which has a two-year payback, this could result in a $90,000 project that meets the owner’s payback tolerance.
“It’s definitely helpful to get a building owner to take a look at longer-return projects that might be more difficult to swallow on their own by combining them with less-invasive, quicker payback projects,” Lazarian said.
• Relationships are key: “It’s important to have relationships with good local distributors as well as HVAC providers because there are huge savings from replacing those systems,” Lazarian said.
FSG’s Morales also advised contractors to align themselves and become strategic partners with local utilities. Most utilities have rebate programs and are in need of good local contractors to implement specific strategies for customers.
• Tap resources: A number of solid resources are available to help contractors structure themselves for success in the upgrade market. For instance, electrical contractors can turn to trade associations and industry organizations, such as the National Electrical Contractors Association, the International Facility Management Association and Building Owners and Managers Association, as good sources of customer lists and for training in new technologies and energy audit techniques. Contractors can also learn from manufacturers’ training seminars and webinars and use their tools and dashboards to showcase the energy savings from a project (for more on energy modeling, turn to page 108). And contractors should visit www.dsireusa.org to learn about rebates and incentives.
“Familiarizing yourself with the utility rebates available in your area is among the first things a contractor can do to be successful in the energy market,” Morales said.
In a nutshell, Morales said, “Contractors who don’t take advantage of opportunities to bring these new technologies to their customers will be left behind.”
“Throughout history, new technologies have come through our channel and the winners have been those providers who have responded quickly,” Lazarian said. “Someone’s going to do this work; hopefully, it will be electrical contractors. Now’s a great time for contractors to get into the upgrade business and many companies and building owners are investing in energy-efficient projects,” he said. “There are opportunities for everyone.”
BLOOM is a 20-year veteran of the lighting and electrical products industry. Reach her at firstname.lastname@example.org.