Educating Residential Solar Clients About the Solar Payback Period

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May 2, 2023 | By RGR Marketing Blog

Your Solar Clients Will Want to Know About the Solar Payback Period

A solar installer needs to use every tool in their marketing toolbox when dealing with prospects who remain on the fence about solar. This is because these homeowners tend to need more information than other prospects who happen to be more educated about solar.

While the go-to message tends to focus on how much money solar can save a homeowner every month, there’s one topic that is rarely talked about that can help make it easier to convert stubborn prospects – solar’s payback period.

In this guide, you will learn how to properly educate your residential solar clients about the solar payback period and why it should be a mainstay fixture in your sales proposals.

What is Solar Payback Period?

Solar’s payback period is the amount of time it takes for the energy savings provided to the homeowner by their solar system to exceed the amount it cost them to go solar. This is also known as the customer’s “break-even point.”

The average payback period for residential solar is 7 to 10 years, but every customer’s solar payback period is different because there are a variety of different factors that can impact each customer’s break-even point.

What Factors Influence Solar Payback Period?

There are four primary factors that can influence your client’s solar payback period, including:

Solar system size
Household electrical use
Payment method (cash vs financing)
Utility electricity price

Solar system size is obvious here because this not only dictates how much the system will cost the homeowner to have installed, but also because it determines how much of the home’s energy will be provided by their system. If the system doesn’t feature battery storage, then the home will need to rely on grid power for its electricity after the sun goes down, and this can reduce the client’s “real time” savings potential.

The daily amount of electricity used by the household also impacts their solar payback period. This is also directly tied to the size of the system, as an undersized system will require the home to rely on more grid-produced electricity than if the system was sized properly.

If the client pays for their system in cash, then they will enjoy the shortest possible payback period because they won’t have to factor in additional costs associated with financing their system, such as interest rates, loan fees, and more.

Lastly, unless the system is sized to meet 100% of the home’s energy needs, and it has enough of a battery storage system to provide it with all its evening electricity, then the utility electricity price also needs to be factored into the equation. This is the amount it costs to use grid-produced electricity, measured in kWh.

How to Calculate a Client’s Solar Payback Period

The basic formula for calculating solar’s payback period is as follows:

Payback period = Net Cost of Going Solar / Annual Energy Savings

Here’s an example to see how this equation works.

The net cost of going solar is the price of the solar system (including installation costs and factoring in any tax credits, rebates, and other incentives that will be applied). For this example, the solar system will cost $24,000 in total with the client paying in cash. Minus the 30% federal tax credit, this brings the net cost down to $16,800.

To determine the client’s annual energy savings, you will need a full year’s worth of their electricity bills. Add the bills together to determine their annual energy cost. The average American household uses around 10,000 kWh of electricity per year and pays 16.7 cents per kWh for that electricity. This makes $1,670 the average American household’s annual energy savings.

With these two numbers, you can now calculate the client’s solar payback period:

$16,800 / $1,670 = 10.05 years

Additional Factors to Consider

This equation can give the client a good idea of how long it will take for their energy savings to eventually cover the cost of their solar system, but there are other factors that can come into play. For instance, inflation can affect the overall cost of the solar system and the length of the payback period.

Also, the federal solar tax credit (which is applied in the example to reduce the cost of the system) should only be applied if the client pays for their system in cash or they make a lump sum payment in the amount of their tax credit to their solar loan’s principal. The tax credit only reduces a solar homeowner’s taxable income amount for that year. It is not a cash benefit that gets paid to a solar customer by the IRS. So, if the client is financing their solar system and they don’t make a lump sum payment to their loan principal, then their cost will remain the same and their payback period will be longer.

Connect With Better Quality Solar Prospects and Convert More Sales

Discussing the solar’s payback period with your prospects can help them better understand the value solar can bring to their households and their financial wellness. When it comes to solar, the more informed your prospect is, the harder it will be for them to ignore the benefits that they could to stand losing the longer they wait to go solar.

At RGR Marketing, we can provide you with exclusive access to high-quality solar leads. We specialize in providing solar installers with the leads they need to take their businesses to the next level. Our leads are not only well-educated about solar and close to making their purchasing decision, but our leads are validated and scrubbed to remove any dead leads or incomplete or duplicate contact information before you receive them, thus saving you plenty of time, money, and other valuable resources.

Better quality leads mean more reliable sales conversions, so put your trust in the lead generation firm that has more than 20 years of experience serving the solar industry. Get your leads from RGR Marketing and let us be a partner in your success this year.

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Your Solar Clients Will Want to Know About the Solar Payback Period

What is Solar Payback Period?

What Factors Influence Solar Payback Period?

How to Calculate a Client’s Solar Payback Period

Additional Factors to Consider

Connect With Better Quality Solar Prospects and Convert More Sales

Start making more
money today!

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Your Solar Clients Will Want to Know About the Solar Payback Period

What is Solar Payback Period?

What Factors Influence Solar Payback Period?

How to Calculate a Client’s Solar Payback Period

Additional Factors to Consider

Connect With Better Quality Solar Prospects and Convert More Sales

Start making more money today!

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