Learning and Working Our Way to Success
Practice is making perfect as Home Performance with Energy Star branches out into new territory.
Four years after the launch of Home Performance with Energy Star—a program aimed at bringing home performance to existing homes—I am excited first and foremost by its success in the marketplace. In New York, where the program first took root, over 5,800 homeowners have invested more than $40 million of their own money in home performance improvements— improvements that were completed by qualified contractors using advanced diagnostics to make these homes more energy efficient, safer, and more comfortable (see “A New York Energy $mart Program,” p. 24). In Wisconsin, the number of completed home performance jobs has increased tenfold in the three years of the program’s existence there (see “Wisconsin’s Home Performance with Energy Star,” p. 25).While homeowners are suddenly finding themselves comfortable in their own homes, contractors are also benefiting from the program. Contractors who incorporate this comprehensive, whole-house approach into their businesses are finding they can charge a fair price, make a decent living, and feel good about the difference they’re making to their customers.
Because home performance contracting makes sense for contractors and homeowners alike, this whole-house approach to home improvement works even in markets that have no program support. Contractors like Joe Kuonen and Royce Lewis in Arkansas, and Mike Woodson and Jerold Sit in Mississippi, are demonstrating this on a daily basis (see “The Right Way Is Right,”HE Nov/Dec ’04, p. 40). Unfortunately, for a variety of reasons, contractors are only figuring out the enormous opportunities at their fingertips one at a time. There are tens of millions of homes that could use some performance and efficiency improvements. Yet right now most homeowners don’t have ready access to contractors who understand the science behind how the whole house works or how to apply that knowledge. That’s where Home Performance with Energy Star comes in.As the program spreads across the country, we are learning how to connect the dots more quickly between trained contractors and customers.
As the two programs with the longest history in Home Performance with Energy Star, New York and Wisconsin provide a long-term view of how this program can most effectively make an impact. Hats are off to the two programs for jumping in early and sharing their experiences. They also illustrate that not all Home Performance programs have to be identical to work well; these two programs operate using different contractor business models.And we are continuing to learn from the newer programs arising in California; Kansas City and St. Louis, Missouri;Austin,Texas;Atlanta, Georgia; and elsewhere. Each is contributing to our understanding of how to help make home performance a visible and viable industry nationwide.
Multiple Business Models
There are probably as many potential home performance business models as there are contractors. However, there are two end points of this continuum that are useful to examine: the home performance consultant and the home performance contractor. The consultant provides a third-party evaluation, recommendation, and perhaps postinstallation verification, but he or she doesn’t install the improvement measures. The contractor does it all. For both contractors and program administrators, there are opportunities and challenges with each approach (see “The Consultant Versus the Contractor”). I believe that the comprehensive contractor approach has a greater advantage in the market right now. However, there are a variety of reasons for choosing one model or the other, or for choosing something somewhere in between. The important thing is to recognize which approach will be most effective in a given area and to design the business or program accordingly. In a pilot kicking off in Minnesota, where a rater infrastructure already exists, the proximity to Wisconsin’s consultantbased approach to Home Performance with Energy Star has led program administrators to center their efforts on consultants. In places like Atlanta and St. Louis, for reasons that include local infrastructure and high-quality remodeling contractors who are well positioned to take the step to home performance, start-up programs have focused on developing home performance contractors.
Another opportunity that Wisconsin has developed with very encouraging results is hooking consultants up with remodeling contractors. Originally, several programs looked at remodelers as potential home performance contractors. And some remodelers are making the transition with amazing results. However, Wisconsin has shown that remodelers can also be attractive clients of home performance consultants and contractors. Dozens of remodelers in Wisconsin are using third-party consultants to identify potential problems, make recommendations, and verify the quality of their subcontractors’ work. And they are emphasizing the independent quality assurance (QA) that a thirdparty evaluator provides in their marketing approaches to homeowners.
Contractors Are the Key
Regardless of the business model, it is the contractors’ initiative that makes these market transformation efforts fly. Programs can provide training opportunities for contractors and market the heck out of a concept. But this alone is not enough. Contractors who sit back and wait for even robust program marketing efforts to generate leads and keep them busy are unlikely to thrive in today’s market. Conversely, contractors who really integrate the home performance approach into their business, and then market their business as they normally would, are more likely to find success. This is not to say that program level marketing isn’t very important. It absolutely helps prime the pump and establishes a high level of credibility for home performance contracting. Real go-getter contractors can achieve success without heavy marketing at the program level. But the more programs are able to support contractors’ efforts, the faster their businesses will grow.
One recurring theme I’ve observed during the growth of the different local programs is that it’s a lot easier to teach contractors the technical skills than it is to teach them basic business skills and the nuances of marketing, selling, and delivering comprehensive services. This realization may have big implications for how programs structure entry incentives for contractors and how they go about recruiting contractors to participate in the program. For example, managers of a developing program in Colorado are taking a hard look at how best to use their resources to ensure that the contractors they invest time and energy in are likely to run a home performance contracting business successfully. To that end, they’re targeting contractors who value the approach enough that they are willing to pay for their own training and equipment, and to commit staff to the necessary training and mentoring. This required investment forces contractors to self-screen for serious commitment and allows the Colorado program to focus their efforts where they are most likely to succeed.
Tailoring the Message
To help consumers embrace the concept, marketing and sales need to be responsive to consumer needs. Programs and contractors alike report that energy or cost savings aren’t usually the primary motivators for homeowners. These customers seek out home performance contractors for a variety of reasons, ranging from comfort to building durability to health and safety.This may change as energy prices rise. But it’s clear that what’s important in designing consumer marketing pieces is listening to homeowners and responding to their needs. The great thing about home performance is that applying good building science allows contractors to solve a variety of problems—including problems that may have been previously misdiagnosed— and save energy in the process.
Whether contractors are participating in programs, or whether they’re on their own like Joe Kuonen in Arkansas, they all identify financing as critical. Dick Kornbluth, a contractor in Syracuse,New York, says,“Four years ago almost all of my customers paid cash. Now most of them use financing.” Why the change? One of the primary reasons is the scope of the jobs. Several years ago, most of Kornbluth’s jobs were limited to installing insulation, and most people could scrounge up the $1,000-$3,000 they needed to pay for the work. But the scope of the jobs has grown to an average of over $7,000 in New York, with some jobs pushing up as high as $20,000 for energy-related measures alone.Access to financing becomes key to closing these types of deal. In response, some programs offer lowerthan- market-rate financing through interest rate buydowns and other mechanisms. In New York, for example, homeowners can get a loan offered through Energy Finance Solutions, and the state buys down the interest rate to 5.99%.
All contractors will admit that better interest rates make selling jobs easier. But when pressed, most say that it is not the lower rates that are critical, it is the ease of access. With 24-hour turnaround and the potential to prequalify customers—or even to offer a ten-minute turnaround on some consumer loan and credit card applications—contractors are able to close the deal while they’re in the house and the customer is excited about the possibilities. “If homeowners are left having to hunt down their own financing, many will simply drop out, and I’ll lose them as customers,” says Kornbluth.
Not all contractors have access to easy financing right now, but programs and contractors themselves are working on the question. Some local and regional lenders are stepping in to provide easy and attractive options. Some contractors are exploring opportunities through HVAC equipment manufacturers and credit cards. For example, some credit card vendors offer companies the opportunity to buy down interest rates to as low as 0% for 6 to 12 months. After that, the balance reverts to the market rate; however, with fast approval and an attractive interest rate to homeowners, this may prove to be a valuable—if expensive— tool. We already see this frequently associated with large purchases in the retail sector and “six-month same as cash” financing. Financing is an area that requires further exploration and broadly applicable solutions.
Standards, Certifications, and Protocols
Currently there are no national consensus standards or nationally recognized certifications for whole-house retrofits. Programs and contractors draw from a wide array of existing standards and expertise to put together their packages of what should be done—and how—in existing homes. And the programs have each had to come up with new ways of making it easy for the consumer to identify qualified contractors.This is beginning to change.Working in concert with New York’s Home Performance with Energy Star program, the Building Performance Institute (BPI) has begun to fill this need through its certification and accreditation program (see “Moving Forward with Building Performance,” p. 6). The EPA, with funding also provided by HUD and DOE,last fall announced a $1 million grant to BPI to advance the development of a national infrastructure of certified technicians and accredited contractors to deliver whole-house energy efficiency improvements.
Beyond standards, programs and contractors alike could benefit from comprehensive protocols addressing all aspects of whole-house improvements. The California Energy Commission (CEC) has funded the development of comprehensive protocols covering the full range of home diagnostics, corrective actions, and business practices. Although the protocols are still in draft form, they are already starting to affect program design. A parallel home performance contracting implementation program funded by the California Public Utilities Commission is field-testing them, and start-up programs elsewhere are considering them as a way to create a structure without having to reinvent the wheel.The final CEC protocols are expected to be available by the end of the first quarter of 2005.
Filling the Training Pipeline
The need for good business skills notwithstanding, as contractors grow their businesses and the industry grows, there will also be an increasing need for skilled technicians. A lot of training will probably be done in-house. But will it be enough? Currently, a major bottleneck to increased production is the lack of crews to do the work. Successful contractors report that they can sell a lot more work than they can deliver. One solution is to build the infrastructure and increase the pool of technicians to draw from. In New York, New York State Energy and Research Development Authority (NYSERDA) has worked with a vocational school to develop training curricula that feed into BPI certifications. In Missouri and elsewhere, program managers and even participating contractors are looking at these curricula and other resources to explore the possibility of bringing building science-based training more broadly to community and technical colleges.
We’ve already learned that home performance contracting works in the market. We know Home Performance with Energy Star can help contractors bring the concept to their local market more quickly. And we’ve learned a lot of lessons about how programs can tune this message to their local markets. We still have a lot more to learn, but we’re on our way to establishing a truly national industry.
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