Selling Energy Efficiency to Customers Who ‘Don’t Give a Hoot’: Targeting Small Businesses with a Guaranteed Savings Offer: An Interview with Lloyd Kass of Lime Energy
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- January 15, 2019
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Lloyd Kass of Lime Energy will be presenting at AESP’s Annual Conference on energy efficiency and demand response (taking place in San Antonio from January 21 to 24). His session is called “Selling Energy Efficiency to Customers Who ‘Don’t Give a Hoot’: Targeting Small Businesses with a Guaranteed Savings Offer.” Lloyd was gracious enough to speak with me about his strategies for selling energy efficiency projects to this tough sector in advance of his presentation at the AESP conference.
Exclusively for the Energy Central community, please enjoy this teaser of Lloyd’s presentation on what does and doesn’t work for utilities to capture behind-the-meter savings from small business customers:
Matt Chester: Thank you so much for taking time out of your schedule to talk with me about your upcoming presentation at the Annual AESP Conference. To get started, your presentation is titled “Selling Energy Efficiency to Customers Who ‘Don’t Give a Hoot’: Targeting Small Businesses with a Guaranteed Savings Offer.” Can you give some background on why that’s a topic you’re experienced in addressing and excited to share with other people?
Lloyd Kass: I really appreciate the opportunity to share on this topic more widely. As a policymaker working with the New York State government for a number of years as well as through my role in the private sector in service to utilities and their customers, both before my current role with Lime Energy, I’ve really been working at the intersection of buildings, underserved communities, financial management, and energy for about 25 years.
Over the past 10 years, including my last 3 years with Lime, I’ve spent a lot of time focusing on managing utilities and specifically addressing the small business market and reaching these customers. I’ve worked with a lot of really thoughtful, smart, experienced people in all facets of addressing this market. I’ve previously worked with multi-family customers, institutional customers, public sector customers, but given that perspective I find small business is the most challenging market I’ve seen.
MC: What is it about the small business market that makes it so difficult to reach with energy efficiency solutions?
LK: It’s such a wide-ranging group—there's some degree of homogeneity to the rest of the mass markets, like single-family homes or apartment dwellers, but small businesses run the gamut. Small business, as a term, is really a catchall for a whole bunch of commercial customers across all types of businesses. In my family we have many different small business owners, from hardware store owners to optometrists and these represent all different walks of life and have different needs as customers. The difficulty in capturing the small business market is in the diversity.
MC: That makes sense. And in your presentation one of the points you appear to make is that small businesses seem to not care much about energy efficiency.
LK: Well I wouldn’t say it’s exactly that they don’t care, I was saying that a bit more tongue-in-cheek. But, for example, a study that surveyed small businesses across the country was published a few years ago that ranked all the issues that kept small business owners up at night and made them worry. The top three to five issues were the ones you’d expect them to be—taxes, regulations, healthcare costs, etc. Utilities fall down around number 19, and doing something about your energy consumption to reduce your bill to utilities fell somewhere in the 40s. It’s just because these small business owners have so much on their plate so energy efficiency just doesn’t really come in as a top priority.
MC: Given how energy efficiency is so low on their priority list, how exactly do you get these small businesses to care? Is it simply demonstrating the amount of money they could be saving or is the ideal approach more nuanced than that?
LK: At least on the coasts, utilities have run small business programs for decades—Massachusetts and California most notably. The way they did it for many years was frankly by giving away the projects. It was approached from a customer satisfaction mindset, and there is some value to that, as well as a regulatory requirement that such an approach met. The most cost-effective way to get people to participate was to just give away projects like lighting upgrades and other simple upgrades. They see it as economic development, they see it as building customer satisfaction, and so forth.
But these days people are looking for more market-based solutions, and giving the projects away frankly isn’t necessary. We now have found ourselves striving to bring down the amount that projects will cost a customer after rebates. Generally speaking, the approach is now more akin to buying the efficiency off of the customer. A given project might have a 10-year life and the utility is paying those costs upfront and gets paid back through the energy savings so that the customer never has to put up the capital.
The other thing is that the energy efficiency field used to largely be driven by engineers, but now it’s a much more multi-disciplinary field. We’ve got marketing and sales expertise involved and we have to sell the aspects of the project that they’re interested in. A grocery store owner can be offered energy efficiency controls for their refrigeration units, so they don’t care as much about the energy savings from those upgrades as much as the more reliable control systems are going to help avoid food spoilage. Upgraded and efficient canopy lighting at a gas station will make people feel safer and brighten up the facility. Retail space lighting might make products look better. And then you can say that these upgrades will largely pay for themselves by the energy savings and the utility rebates, so why not embrace them? So, for some of these customers, the energy efficiency is a nice ancillary aspect of the projects, but it’s not the main driver being presented to the customer.
MC: That makes a lot of sense. In fact, in part of your presentation it seems you talk about a significant issue being the ability to gain the trust of customers that you’re offering real solutions to their problems rather than just trying to sell them something they don’t need. It sounds like the ability to look at an individual customer and offer them customized solutions to meet their unique needs is a strategy you’re proposing to build that trust.
LK: Yeah exactly. But in the end, buying the project down is still a main driver. The customer is taking less risk if they’re paying less for the project. For example, if the utility is paying for 60 to 70% of the project costs then our closing rates are extremely high. But as the utility kicks in less and less and less, despite the best salesmanship, there’s still less of a conversion rate.
Now, as utilities are trying to be more efficient, capturing those so-called negawatthours behind the meter, the customers really need to believe in those savings. That’s where you go with a performance guarantee for the customer. Customers are only paying back as they experience the savings and get these upgrades at no risk, so that’s the root of our pitch and presentation.
MC: You bring up the utilities’ role in this, and their motivation is different than that of the customer. The utility may be looking at reducing overall load, the emissions or climate benefits of more efficient customers, reducing peak demand so they don’t need to build out additional generation capacity, etc. Do any of these aspects of energy efficiency factor into the pitch to the small businesses?
LL: For the longest time, a large source of customer distrust was the question of why would a utility want to pay me to use less energy? But the utility motivation could be regulatory requirements, trying to improve customer satisfaction and J.D. Power rating which could help their stock price, and municipal utilities are definitely motivated by the environmental aspects of it.
And that’s the thing, there’s a balance because, as some of us argue in the efficiency space, sometimes getting that energy efficiency from behind the customer meter is more valuable to the utility than it is to the customer—especially if the utility bill isn’t a large portion of their expenses. It’s the idea that every little bit counts and if the utility can avoid building another substation and instead just lower the demand on the grid, particularly at peak periods, then a lot of heartache is avoided. Then the customer starts to come around and get the importance to efficiency more and more, too.
MC: In your experience, are there any specific types of energy efficiency pitches that excite small businesses the most?
LL: We used to do a lot of retrofitting in the lighting space. Back when that was upgrading fluorescent lights with just more efficient fluorescent lights, that was a tough sell. But the light quality of commercial-grade LED lighting now really is exciting to a lot of business owners in terms of how it makes their product look, how it makes their space look, making outdoor areas appear more inviting and safe. So, there is an excitement on the lighting side.
And then the other aspect that’s starting to get penetration with small business is the Internet of Things, the idea of using smart home type products in a commercial space. Being able to know what’s going on, who left the lights on, who bypassed the scheduled settings on thermostat—all those things that give control and choice through an app at your fingertips is something that’s exciting to everyone, including small businesses.
MC: To end up, is there anything we haven’t talked about that you want to leave readers with heading into your presentation at the AESP Annual Conference?
LL: Ultimately, I’d say the most progressive people in the utility energy efficiency sector are looking for new business models and we’re trying one out that’s pretty out of the box in offering this performance guarantee to customers. I just hope people come and want to hear about it. I don’t suggest that we’ve cracked the code and figured it all out, but I think we’re certainly onto something.
If interested in learning more about energy efficiency pitches to small businesses, be sure to check out Lloyd Kass’s special session on this topic at AESP’s Annual Conference (in San Antonio from January 21 to 24). You can learn more about the agenda and register for the conference here.