HVAC Contractors Are Finding Success Selling Residential Geothermal Systems
The federal government passed the geothermal tax credits, and HVAC manufacturers are delivering state-of-the-art, energy-efficient geothermal products. But now comes the hard part — HVAC contractors need to identify homeowners who are the target market for these products, educate those people on the technology, and close the sale.
For a lot of geothermal contractors, they rely on referrals. If a homeowner is not familiar with the technology, they are much more likely to be open to the product if someone they know has had success with it.
Rabe Hardware in Blairstown, Iowa, has great success with its referral program. The program is the company’s largest lead generator. For any referrals that result in the purchase of a new geothermal system, the company thanks both parties — the referring customer and the new customer — with a $50 Visa gift card.
“We also participate in home shows, agricultural shows, energy fairs, and networking groups, like the builder/realtor associations,” said Kristen Lang, director of marketing, Rabe Hardware. “Our marketing mix includes some old-fashioned tactics, like television, radio, billboards, direct mail, print, local sponsorships, networking, shows/expos, and community partnerships. In more recent years, we’ve invested more time and money into our website, online paid advertising, social media, and developing content for white pages and blogging. Another important piece to the puzzle is business reputation. We work really hard to exceed our customers’ expectations in every way and try to harvest that positive feedback to use in our marketing efforts.”
Michigan Energy Services in Whitmore Lake, Michigan, also receives the majority of its leads from referrals. In 2017, the company’s breakdown was 57 percent referrals, 19.5 percent internet (including social media), 7 percent service calls, 5.5 percent home shows, 5 percent supplier leads, and 6 percent miscellaneous.
As contractors navigate customers through the process of selecting a heating and cooling system, most try to focus on education first. Many homeowners have never purchased a furnace or air conditioner before, so this is an unfamiliar process.
“Helping our clients understand the features and benefits of all types of systems, including geothermal, helps them determine which system is best for their particular wants, needs, and goals,” said Rob Derksen, owner of Michigan Energy Services. “Those customers who choose geothermal do so for many reasons. Comfort, ecology, efficiency, longevity, quiet operation, safety, the potential for energy independence by adding solar PV [photovoltaic] to the equation. The bottom line is that we allow our customers to formulate a decision that is based on knowledge, not based on what we want to sell them. I think this is why we have had a lot of success in the geothermal industry.”
Brian Houchin, vice president and general manager of Bratcher Comfort in Normal, Illinois, had a different answer when asked to identify the top three features that get people interested in geothermal.
“Energy savings, energy savings, and energy savings,” Houchin said. “Really, in our market, energy savings and return on investment are the main story. Yes, we talk about the environmental impact, but most consumers are more concerned about their financial impact over the environment.”
One item most contractors can agree on is that the reinstated federal geothermal tax credits — a 30 percent income tax credit for residential installation of a geothermal heat pump in 2018 and 2019 that phases down until it ends Dec. 31, 2021, and a steady 10 percent investment tax credit on the commercial side — are capable of boosting sales but only in the short term.
“They will greatly impact our sales — not the story,” Houchin said. “We have already seen a large increase in interest and contracted work since getting the credit back. Unfortunately, we were a bit of our own worst enemy for the last year as people were waiting to see if the credits came back. It will be interesting to see with the phaseout what happens. I think we will see a large bump in sales the next two years for sure. I truly believe once the credit is gone, we will still be able to sell the system. We just need to tell a different story.”
The biggest pushbacks geothermal contractors typically have to overcome are upfront cost, lack of trust in the cost savings, and lack of understanding of the technology. That is why educating the homeowner is so important.
“Customers either think geothermal is too expensive, or they don’t want to tear up the yard putting in the geothermal loop field,” Lang said. “That’s a big reason why we use a boring rig to install the majority of our geothermal loops. It allows us to install geothermal in a space as small as 12-by-12 feet, and we don’t have to make a mess by excavating.”
Being in Iowa, Rabe Hardware has found great success with farmers as a demographic that can benefit substantially from geothermal. Not only do farmers understand the importance of energy efficiency, but they understand tax credits and typically have space for the ground loop. In addition, Rabe Hardware can convert them from propane to electricity and save them thousands of dollars on their annual heating, cooling, and hot water bills.
The subset of homeowners who are buying geothermal systems for their homes today tend to be between the ages of 40-65, are second-time homeowners or greater, and have a household income of more than $100,000.
“A growing segment for us is retirees,” Derksen said. “This group is looking for low cost of operation and maintenance in addition to a long life expectancy. They have an approach that they are doing this for the last time, so covering the additional upfront expense is not a concern for them.
“Our target audience should be the millennial,” he continued. “This is the population that will make the greatest impact for the geothermal industry in the future. They want products that are technology driven, efficient, require little maintenance, last a long time, and are good for the environment. They are interested in renewable energy, do not see the value in a fossil fuel world, and will undoubtedly shape our energy economy. This group is also having an influence on their parents’ buying habits today.”