Practical Lessons from a Home Performance Contractors Association

April 16, 2006
Home Performance Special Issue 2006
A version of this article appears in the Home Performance Special Issue 2006 issue of Home Energy Magazine.
Click here to read more articles about Business Best Practices
        Practical business issues can be some of the greatest challenges for contractors who are moving into the home performance business.All too often, those business problems can keep an otherwise capable contractor from making a successful transition. This is a huge lost opportunity— not only to that contractor, but also to the homeowners who don’t get served and to society’s overall environmental needs.We have been working with the California Building Performance Contractors Association (CBPCA) for four years trying to ease the way for contractors who are new to home performance.What follows are some of the common problems that contractors and sponsoring programs are encountering along the way, along with some contractor-tested solutions.
        The home inspection is key. Although this point may be too elementary, it bears repeating that the home performance diagnostic inspection is a crucial step in the sales process, because it is what sets you apart from the low-bid crowd. The way the home inspection is conducted is the principal key to a successful job sale, with enough money in it to assure a great job and a good profit. This includes asking questions to find out what home problems the client actually experiences or cares about, maximizing the educational value of the home inspection with homeowner participation, considering essential needs versus desired improvements and other valuable recommendations, and helping the client to make effective cost and benefit tradeoffs. Pricing and selling the home diagnosis itself can be a challenge too, although in general it should be priced economically as a job sales aid and treated as an overhead cost.
        Green is going mainstream. Consider this quote from the columnist Thomas Friedman that appeared on the Op-Ed page of The New York Times on January 7, 2006:“Green is the new red, white, and blue.” It’s happening, folks and you can either take advantage of the swelling consumer interest in green practices (including the home) or you can get swept aside. Green home practices include being responsible in dealing with anything that can harm the environment, from wasting energy—in the process generating avoidable carbon dioxide, defacing landscapes, and producing toxic power plant emissions—to avoidance or safe use of dangerous pesticides, herbicides, paints, and cleaners.
        Integrating solar. Integrating home performance analysis and retrofits with solar thermal and PV installations is one obvious approach. More and more utility and state programs are offering substantial incentives for solar installations as well as for energy efficiency improvements. Why not tie them together in an environmental position for your firm? You can use specialty subcontractors or expand your own solar skills without too much effort or expense.
        Toxics management. Another interesting opportunity is to integrate home performance with a whole-house inspection for environmental and health hazards, together with disposal of any dangerous materials found and referrals to specialists for any potentially toxic conditions such as black mold evidence.There are many online and classroom sources of training as well as  certifications available on these topics. One home performance firm in California has combined all these elements, including home performance, solar, and toxicity inspections and recommendations into a “sustainable” home performance business model and is getting a great response. Think broadly; your customer has broad needs.
        Cash flow. Financial management can be a challenge. Transitioning to home performance jobs can be a strain on cash flow while the new business develops. You have to foresee that and plan for it. As with remodeling and other large home improvements, you can probably get clients to agree to an advance partial payment to cover materials and startup costs. Progress payments based on milestones are also often possible if the home performance job is a big one, but most jobs take only days or weeks rather than months. And starting small, for instance by focusing initial marketing on your prior and current customers for more conventional jobs, is advisable as a way to ease into the business while maintaining other sources of revenue—unless you’re so big or well funded that you can afford the cost and risk of a big marketing campaign and business buildup. Not many can do that.
        Knowing all your costs is crucial. Too many contractors tend to underestimate their overhead costs, which include everything but the materials and labor that go into the job—all unbillable time, office costs, insurance, tool purchases, equipment depreciation, marketing, bidding, training, and more. Every client job should include an overhead charge for a fair share of those costs, or they eat up your profit. So you need to track them all and know what they’re costing you every month.
        Pricing the diagnosis. In home performance work, it’s usually not feasible to get clients to pay $300-$500 or whatever it actually costs you to sell, schedule, and conduct a home inspection; analyze the results; derive solutions; and price and present your proposal. And you don’t get every job you bid after a diagnosis, although you are likely to get a lot more of them than in conventional contracting. So those home inspection costs are all overhead. And they should be; they’re really a part of your marketing rather than a stand-alone service for profit, unless you are a home diagnostic consultant or energy rater. (These specialists have to recover all their costs in the inspection and testing fee.) Price the inspection to sell—a figure of about $100-$200 for a typically sized house generally works— and book the rest of the costs as a marketing expenditure. Then recover those costs as part of your overhead charge on all the retrofits that you actually do.
        Sales paperwork can be reduced. The diagnostic report, cost estimate, job proposal, and contract take time to prepare, but they are too important in the sales process to shortchange. They need to look professional and informative; having good paper products can make the difference in selling a home performance job. It’s worthwhile to develop some standard templates for these things—especially the report and proposal— that you can just make a few changes to and use quickly for every job. Sometimes sponsoring programs can provide such templates; if not, building them is time well spent because they get built once but used many times.
        Program reporting. There are an increasing number of home performance programs funded by utilities or states to encourage contractor training and homeowner participation. Each program needs data to meet the requirements imposed by state regulators to prove that it is spending ratepayer or public funds wisely and generating enough public benefits to justify the program’s expense. Home Performance with Energy Star also needs data on jobs.This is a challenge for home performance programs, because the typical contractor suffers from instinctive paperwork phobia. However, programs must find ways to overcome contractors’ aversion to reporting, or the programs can be cancelled for lack of success in the sponsor’s terms—which might judge programs solely on the energy savings they generate. As a contractor, it’s best to appreciate the requirement for data reporting as a byproduct of collecting the data that is needed anyway to understand and diagnose the house right, rather than as a hassle that is imposed by the local program sponsor.
        Sell all the benefits. You’re not just providing energy savings! Our homeowner surveys indicate that most of the motivation for doing a home retrofit comes from a concern for family health, safety, comfort, home durability (avoidance of big repairs later), value, environmental responsibility, and general peace of mind or pride—not energy savings. Reducing the utility bill is usually an important contributor to those motivations but, by itself, the bill savings can’t even come close to justifying the cost of a comprehensive home performance job. You have to produce other kinds of value to make the expense seem reasonable.You must be a detective, looking for clues.Ask about chronic respiratory problems, cold or hot rooms, drafts, excessive dust, noise from ducts, smoky fireplaces, and unwanted odors; these complaints are just as important as high utility bills.
        Make marketing affordable. The key here is to show the customers what they’re missing. Effective marketing doesn’t have to be too expensive. It’s possible for contractors to do cost-effective public education, marketing, and advertising of their services. We train home performance contractors in practical guerilla marketing and it works; they quickly learn to find their own leads without breaking the bank. Here are a few examples.
        Home shows. Plenty of people who are already interested are there! Home performance programs and contractors should be there, too, explaining what they do. Our contractors get lots of leads this way.
         Newspaper articles. Meet the local newspaper home editor. Suggest writing a column on home performance.Or get the home editor interested in home performance by offering a free green or energy-saving home inspection, perhaps using the home of a local public figure. Home performance programs can help set this up, perhaps photographing or videotaping the inspection, and providing basic written information to keep the reporter from telling the wrong story. We get lots of calls after such articles are published.
         Web site. Have one! Creating a home page is cheap now, and often even your kids know how to build it.A Web site is less costly and quicker to produce than brochures or complicated media advertisements are, and is certainly less time-consuming than lots of one-onone talk. Mention it in any other advertising you do. In creating your site, focus on educating your public. There is plenty of great information you can borrow from other sites such as the EPA’s Home Performance with Energy Star, our California program, and other related program sites. Use the information to create a Web site that will establish you as the local expert, and tell prospective customers to check it out.
        Give educational talks. The public doesn’t understand this subject, and they’re often suspicious of contractors. Public speaking can help educate consumers and establish you as an expert. Good slides—which can be gotten from existing programs—can make almost anyone able to give an interesting talk. Local service clubs always need speakers, and home performance contracting is something new and interesting. Offer Saturday workshops and demonstrations through local clubs and agencies. Address neighborhood associations.
        Talk radio. Get on a talk radio show, if you’re a good talker. This approach has been used very successfully by contractors in several areas.We’ve not seen a lot of success with paid radio (or cable TV) ads, however.
        Local advertising. Neighborhood newspapers are cheap advertising and well-focused on local areas. Stick with one for a few issues, see how it does, and try another. Some successful home performance contractors have gotten their business off the ground with just this approach.
        After the job. Don’t quit when the job’s done.Your job—and your opportunities— aren’t over when the work at a home is done. For example, consider using a post-completion certificate listing the home performance work done in a home, with your name and contact information clearly evident. Ideally this would be posted on the HVAC equipment or some other discreet, but visible, place. It reminds the homeowners of who did such a great job and helps them recommend you to their friends. And do you ask for referrals to other prospective customers? If not,why not?
        Follow-ups. Use a tickler file or calendar to schedule a goodwill follow-up call six months after a job is done. This keeps your name fresh in the homeowner’s mind and creates a good impression about your commitment to quality and satisfaction. This call may also allow you to finish any parts of a proposed home performance retrofit that the homeowner had to defer, and it gives you another opportunity to ask for referrals.
        Property records.Yet another possibility in some states is to file a statement in the home’s local county property record to document the what/who/ when and benefits of the work done. When the house is later sold, real estate agents and lenders will see this and can use it in sales and valuation.
        The lesson in all of this is that the business and marketing aspects of home performance contracting are at least as critical to success as technical knowledge—and that you can handle them. Sure, most contractors have to make a lot of changes in how they do business when they move into home performance. Some get demoralized and give up too soon; others really aren’t cut out for it and should opt for a different and more gradual path to better practices. But lots of contractors have made home performance a successful business, despite the adjustments needed.Contractors tend to be clever,and they keep finding new ways to improve their home performance business. We hope they find these tips useful, and we’d like to hear of others that we can share.
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