Mark Jewell's Blog: Selling Energy, page 308

Funding Education

Selling efficiency in the residential setting has its own set of challenges. In many cases, the energy savings are not particularly compelling on paper. It can be difficult to convince a homeowner to invest time and resources to pursue an efficiency project that will not produce huge savings. In past blogs I’ve mentioned plenty of different angles you might choose to take when reframing an efficiency project. Today, let’s explore an education angle.

Suppose your prospect is a young couple with a newborn. Based on your calculations, the project you intend to sell them will lower their utility bill by about $100 a month. $100 is not a very large amount of money these days. Coffee drinkers can easily spend that and more each month on their daily cup from Starbucks. Bottom line, it’s not a very compelling figure, so you have to find a way to reframe it.

You could say, “You’ll save $100 a month if you approve this project.” Compelling? Not really. What if instead you said, “If you use the $100 per month savings we’re projecting to start a college fund for your new baby, by the time she’s ready to apply you will have saved over $20,000 that you can use to help pay for her first year. In fact, that college fund should grow much faster considering that energy prices are likely to rise significantly between now and then, which will increase your monthly savings. Wouldn’t it feel great to have a $20,000 or more head start on funding your daughter’s higher education? Oh and by the way, we’re talking about saving more than $20,000 after-tax.”

What you’ve done is turned $100 into a far more significant amount of money that actually has the potential to affect your prospect’s life in a positive way. You should always be on the lookout for creative ways to reframe savings – particularly when the savings are not necessarily very compelling on their own. This reinforces the fact that it’s crucial you gain knowledge about your prospect before you propose a project. Simply knowing that your prospect has a newborn (as in this example) gives you the leverage you need to reframe potential utility savings in a powerful way.
 

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Engineering the Best Value

Long-time readers may recall a blog I wrote back in October of 2013 about value engineering. In that blog, I talked about the perils of interpreting “value engineering” as “removing features to reduce first cost.” The way I see it, the goal of value engineering should not be to save money initially. Rather, it should increase the overall value of the project. Simply put, true value engineering changes your focus from saving money in the short run to saving money in the long run.

So what does this mean? Let’s say you have the opportunity to sell a prospect “Model 100” of a particular energy-saving device. The Model 100 involves a given cost and a given projected savings. What if instead of selling your prospect on Model 100, you convinced your specifying engineer to consider the pros/cons of installing a Model 200? 

What would the increased first cost be? More importantly, would the life-cycle cost of a Model 200 be higher or lower than that of a Model 100? What if an incremental incentive, lower annual operating cost, longer estimated life, or some other benefit offset the incremental first cost of going from a Model 100 to a Model 200? Then you should ask the specifying engineer to expand the analysis and perform a similar life-cycle cost comparison between a Model 200 and a Model 300. 

The approach to value engineering that I just described has the potential to deliver great value (pun intended) to your prospect. Doing value engineering the conventional way – focusing only on how you might slash first cost – is doing a great disservice to both yourself and your prospect.
 

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Time Value of Money

Time Value of Money (TVM) is an extraordinarily important part of any project financing.

So how do you calculate the relationship between present value (PV), future value (FV), and periodic payments (PMT)?  You can use either a handheld calculator or an Excel worksheet. Here are the TVM functions that are available on many calculators:

Present Value – PV
Payment – PMT
Number of compounding periods – N
Interest rate per compounding period – INT
Future Value – FV

In Excel, there are series of functions you can use:

PV =PV(rate, nper, pmt, [fv], [type])
PMT =PMT(rate, nper, pv, [fv], [type])
NPER =NPER(rate, pmt, pv, [fv], [type])
RATE =RATE(nper, pmt, pv, [fv], [type], [guess])
FV =FV(rate, nper, pmt, [pv], [type])

If you’re wondering how to populate any of these Excel functions with values, just click the fx button in the formula bar and that will give you the function’s syntax. You can also read more about any one of these in the “More help on this function” section within Excel.

You have to make sure whenever you’re doing these TVM calculations that you get the positive and negative values correct. For example, PMT, PV and FV can’t all be positive numbers! 

Let’s assume you’re financing an energy project.  The amount you’re financing is a positive number – the PV. If the loan is fully amortizing (i.e., the series of loan payments is set to retire the principal completely in addition to covering the interest during the loan term), the FV is zero. You’re paying the loan off with a series of cash outflows, so the PMT is negative.
 

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Bundling Non-Mutually-Exclusive Projects

In keeping with yesterday’s blog about how overwhelming it can be to have too many options, today we’ll explore how you might reduce decision-making stress by offering a small number of project bundles.

Suppose your prospect is gung-ho about making his building more energy efficient, and he’s even committed to allocating some time and money to pursue that goal. Should you present him with a dozen efficiency measures that would work with his situation and ask him to choose the ones he wants to do? Or should you package those measures in logical bundles and present just a few options from which to choose? If you were in your prospect’s shoes, I bet you’d prefer the latter. The bundling approach not only reduces the stress of having too many options to consider, but also saves your prospect the time and effort of crunching the numbers from various project combinations to derive their respective financial returns.

In the case of Non-Mutually-Exclusive projects, presenting a bundle of options in a financial summary is very simple. You just insert an extra row into the spreadsheet for each additional offering and stack the cash flows. Rather than having just one first-cost-out, one rebate-in, one first-year-savings-in, one second-year-savings-in, and so forth, you’ll have multiple figures for each. You then run the same metrics as usual on the combined cash flow streams to come up with a blended series of metrics.

The projects you choose to bundle together should be logical and should be chosen based on your prospect’s particular situation. Be careful to consider interactions between the measures on either the cost or savings lines. For example, packaging two measures might reduce their total installation cost by allowing you to install both using the same contractor and a single visit to the property. On the other hand, one measure may cannibalize the projected savings of another. So, take the time to evaluate carefully what combining certain measures might do to collective costs or savings. Ideally, each one of these bundles you present will be more compelling in combined form than any individual project would have been on its own.
 

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The Paradox of Choice

The number of choices we make on a daily basis is staggering. As humans, we value the fact that we almost always have a range of options from which to choose. Whether we’re deciding what to order for lunch or choosing what service to use to mail a package, we are constantly making comparisons and weighing our options to choose the best fit. 

While it may seem that having endless options gives us maximum flexibility and affords us the leisure of being able to choose the perfect thing for each situation, it also can add to our overall stress level and cause us to forgo decision-making altogether. I’ve talked about this in the context of efficiency sales – if you overwhelm your prospect with too many options, he or she will likely choose none of them. If you’re interested in learning more about how people make choices, I recommend reading The Paradox of Choice: Why More Is Less, by Barry Schwartz.

Here’s a summary from Amazon Books:

“In the spirit of Alvin Toffler’s Future Shock, a social critique of our obsession with choice, and how it contributes to anxiety, dissatisfaction and regret. This paperback includes a new P.S. section with author interviews, insights, features, suggested readings, and more.

“Whether we’re buying a pair of jeans, ordering a cup of coffee, selecting a long-distance carrier, applying to college, choosing a doctor, or setting up a 401(k), everyday decisions – both big and small – have become increasingly complex due to the overwhelming abundance of choice with which we are presented.

“We assume that more choice means better options and greater satisfaction. But beware of excessive choice: choice overload can make you question the decisions you make before you even make them, it can set you up for unrealistically high expectations, and it can make you blame yourself for any and all failures. In the long run, this can lead to decision-making paralysis, anxiety, and perpetual stress. And, in a culture that tells us that there is no excuse for falling short of perfection when your options are limitless, too much choice can lead to clinical depression.

“In The Paradox of Choice, Barry Schwartz explains at what point choice – the hallmark of individual freedom and self-determination that we so cherish--becomes detrimental to our psychological and emotional well-being. In accessible, engaging, and anecdotal prose, Schwartz shows how the dramatic explosion in choice--from the mundane to the profound challenges of balancing career, family, and individual needs--has paradoxically become a problem instead of a solution. Schwartz also shows how our obsession with choice encourages us to seek that which makes us feel worse.

“By synthesizing current research in the social sciences, Schwartz makes the counterintuitive case that eliminating choices can greatly reduce the stress, anxiety, and busyness of our lives. He offers eleven practical steps on how to limit choices to a manageable number, have the discipline to focus on the important ones and ignore the rest, and ultimately derive greater satisfaction from the choices you have to make.”
 

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Weekly Recap, January 4, 2015

Monday: Read  First, Break All the Rules: What the World’s Greatest Managers Do Differently  by Marcus Buckingham and Curt Coffman and learn what it takes to be a great manager. 




Tuesday: Discover several compelling reasons why a landlord would want to invest in efficiency.




Wednesday: A continuation of Tuesday's blog, this article covers more reasons for landlords to invest in efficiency.




Thursday: Make 2015 a success by working with your best customers from the past year. 




Friday: Learn about Ian Brodie's unique approach to sales calls and meetings.




Saturday: Read this article from LifeHacker and learn how to boost productivity by using "behavior multipliers."
 

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Behavior Multipliers

In striving to achieve maximum productivity, we often focus so much on new strategies that we forget to evaluate our existing habits – many of which may be consistently holding us back. Creating a new habit is easier that fixing an old one; however, the most significant productivity boosts often come from the avoidance of things that previously hindered our success.

An article published on the LifeHacker blog this week suggests that we should focus on “behavior multipliers,” or strategies that allow us to make significant habit changes consistently. Here’s a summary of the four strategies that they recommend: 

Rapid Feedback: Get feedback on your work as early on as possible so that you can make changes and improve without getting completely derailed.

Simplicity: Avoid distractions and focus on the most important tasks. Don’t let the lower-priority items on your to-do list get in the way of the important ones.

Environment: The environment around you affects your behavior. If you surround yourself with motivated people, you’re more likely to be motivated (and vise versa)

Ability: Use your natural abilities as much as possible. It’s easier to leverage your existing talents than it is to build new ones.
 

I highly recommend reading the full article from LifeHacker. It’s really an insightful piece:

http://lifehacker.com/behavior-multipliers-four-factors-that-can-lead-to-suc-1674960789
 

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Would You Like Some Help?

I read a very thought-provoking article a couple months ago on Ian Brodie’s email blog (for those of you who don’t know Ian Brodie, he’s a British sales and marketing consultant). In this article, Brodie presented an interesting take on how you should be approaching sales calls and meetings. I think this concept is worth exploring, so I wanted to share it with all of you.

A lot of people approach a prospect with the expectation that they’re going to get business. According to Brodie, this mindset is fraught with peril. The minute you walk into a room or make a phone call with that attitude in mind, it will be telegraphed in your body language, your micro-facial expressions, your word choices, and so forth. It’s better to go into sales conversations with the intention of figuring out whether or not you and your prospect are a good fit for one another, and whether you as a sales professional have something of genuine value to bring to the table for this particular prospect. This takes the pressure off your prospect and builds trust.

If you determine that you are a good fit and that you have something valuable to offer the prospect, the simple closing question is, “Would you like some help with that?” This strategy is so coy, and I find it very intriguing. If you have an opinion on this topic (either positive or negative), I would love to know your thoughts! Just reply to this email (or if you’re reading on the blog, you can send an email to info@eefg.com). 
 

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New Year, Old Customers

Happy New Year! Last week, we talked about how to plan for 2015 by reflecting on your successes from the past year. As you dive into the New Year, you should also set aside some time to focus on repeat business. Your existing customers know you, they love you (hopefully), and they have experienced firsthand the benefits of using your products or services. It’s foolish NOT to leverage your existing customer base.

So how do you secure repeat business? You should call each one of your clients – especially your biggest ones – from 2014 and say, “You know, we really liked doing projects with you last year. Thank you very much for contributing to our mutual success. What are your plans for capital spending in 2015?”

Before you call each client, be sure to review their situation and come up with any and all solutions you might have for them.  They may very well say, “Well, we have some budget cut out for capital improvements. You know our building and our business – what do you suggest we do?”

While you’re on the phone, be sure to ask for referrals. Most people are happy to give referrals and you should not feel ashamed to ask for them – they’re a natural part of doing business. 
 

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Convincing the Landlord, Part Two

Today, we’ll continue with a couple more ways to inoculate your presentation against objections like “My tenant’s leases are all ‘net’ – why should I care about efficiency improvements?”

Lower Op Ex also means lower base years (or lower expense stops) for new leases. It’s a truism that in a fixed-base lease (e.g., a base year lease or an expense stop lease), the landlord limits the portion of operating expenses he’s obligated to pay before the tenants start contributing. The point at which the landlord stops paying for operating expenses will be informed by either last year’s operating expenses (if the new lease is signed early in the current year) or this year’s operating expenses (if the new lease is signed later in the year). This means that if the landlord reduces operating expenses in the year that is used to define the base year or expense stop, the point at which the tenant begins paying for operating expenses would be lower for every year of that new tenant’s lease. Translation: taking action to lower operating expenses now, before a new lease is signed, can yield benefits for the landlord in each and every year of that new lease term.

Better tenant retention and attraction. If you have lower Op Ex and/or greater comfort, tenants will be more likely to come to you, and they’ll be more likely to stay once they do. You may recall the story I told about one of our ninjas who sold a brand new lighting controls system to a real estate developer in Silicon Valley, and how the tenant appreciated the lighting control system so much that he decided to sign the lease. It didn’t much matter whether the landlord captured the savings. What was important is that he signed the lease with the tenant, which provided additional base rent and higher NOI, which in turn supported a higher building appraisal.

You really have to connect all the dots and understand the business dynamics of commercial real estate in order to have the most impactful and compelling conversation with a prospect in that industry. 

 

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