The solar industry is in a state of transition. Many aspects of the industry are changing and doing so rapidly. There are several reasons for these dramatic changes. The price of solar has dropped significantly. The federal government has locked in a 30% tax incentive until 2032. There have been staggering increases in energy prices which are leading to a more educated homeowner about solar energy. Another factor that directly affects the industry in general and particularly solar salespeople is that some companies are starting to figure out that the way solar sales commission has been paid historically is very flawed. Instead of the inherent redline commission model, they have adopted a revenue share commission model which is far more attractive to solar sales reps and is better for homeowners.
There are several ways that a revenue share solar sales commission is more beneficial to the solar salesperson and the homeowner. But let’s stay with the solar rep for now. In a redline commission model margins are fixed for everyone but the salesperson. In a revenue share or Cost of Goods Sold (COGS) model, margins are variable. What this means is that if the solar system price is reduced, the only one affected in a redline model is the sales rep. In a revenue share model, everyone in the commission stack takes less. This allows the sales rep to theoretically sell a solar system down to the baseline price, which covers the cost of the system.
What is Solar Redline Commission?
A redline is a price per watt or PPW that must go to the solar company, the installer, the manager/dealer, and others like district and regional managers. They fix the amount they will be paid on a sale and give the rest to the sales rep. So, there is a price floor that the sales rep cannot price the system below or they will not make any solar sales commission at all.
As you will see below, in a redline model if a sales rep has a $2.90 PPW redline (or another redline amount), she/he cannot sell below that amount because she/he will not make a dime on the sale. In a revenue share model, a sales rep can theoretically sell the system as low as the baseline price of say $1.75 PPW before they earn no commission on the sale. The baseline price is the cost of the solar panels, inverters, and other fixed costs of the solar system.
How is a Revenue Share Solar Sales Commission Model Different?
In a revenue share or COGS solar sale commission model, as the PPW of the sale goes up or comes down, each participant in the commission stack takes more or less of the commission. Therefore, if competition for the sale requires the sales rep to reduce the price of the system to the homeowner, she/he is not the only one affected. Each entity in the stack takes less.
At Apricot Solar solar reps are paid based on a revenue share model. When a sales rep needs to be more competitive to close a deal she/he will have the management team including the dealer ownership participate, or give up part of their commission as well.
What are the Benefits of a Revenue Share Solar Sales Commission?
The Ability to be More Competitive in Deals
As the industry continues to change and homeowners become more educated about solar, the competition for solar system sales will stiffen. Being paid with the redline model will prevent solar sales reps from competing with those being paid in a revenue share commission model.
The solar industry has developed a poor reputation over the years. One of the reasons is the overcharging of customers for solar systems. The redline commission model incentivizes sales reps to price the system higher and further above their redline so they can make more commission. The revenue share model lends itself to sales reps pricing systems at market rates for the area as they get paid a percentage of the overall system cost versus a fixed amount above a redline.
Adders and Concessions
For those of us familiar with how solar systems are installed, we know that the price of the system is not locked in until the solar company does a site survey. This is where adders can be added to a system. An adder is a component and/or cost that was unforeseen by the sales rep. Examples of adders can be a main panel upgrade, tree trimming, reroofing, and other items.
These new costs must be absorbed by either the homeowner or taken out of the commission to be paid. In a redline model, a sales rep is dealing with a commission floor. If adders or a concession bring the commissions below that redline or commission floor, they get no commission at all. In a revenue share model, the PPW can be adjusted downward to help the homeowner absorb the additional costs. This allows the sales rep to still get paid a commission on the sale.
Transparency of Who Gets Paid What
One of the aspects of the solar industry has been the constant movement of solar sales reps from one company to another or even starting their own company. This is one reason why there are over 10,000 solar companies in the U.S. alone. When solar sales reps realize they are the only ones taking a hit on the margin of a sale and learn what the others in the commission stack are making, they look for a better deal. Or a better redline. They jump to another company that offers them that better or lower redline which should allow them to make more solar sales commission per sale.
The problem that reps encounter when making these switches to a better redline is that the company may be taking more out of the top line of the deal which results in a lower PPW. Therefore, their better redline deal really isn’t better than what they had. They may make less in commission.
The revenue share model is very transparent. Sales reps know what the baseline price of a deal is and who makes how much of the solar sales commission all the way up and down the line.
Conclusion – Redline vs Revenue Share Solar Sales Commission
Although the redline model is the traditional compensation model for the solar industry and may even result in a higher commission on some sales where this is no competition and the homeowner is completely unaware of solar pricing, revenue share is a far better commission model. Solar sales reps get paid a fair commission on each sale. The homeowner is typically going to get a better price. And most importantly, this solar sales commission model is going to allow the solar industry to scale so that the current 4% market penetration can grow to 40% or higher in the near future.
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Learn About a Solar Sales Career with Us
To learn more about a career at Apricot Solar visit Solar Sales from Home. There you can read about our company and watch a detailed business overview video. If you like what you see you'll have the opportunity to schedule a phone appointment to get your questions answered and potentially join the fastest-growing company in the solar industry.