Growth comes from a carefully planning and flawless tragic execution with the current data and analytics contained in the economic analysis of this business plan. Market Structure The market structure of the solar industry is an oligopoly. An oligopoly is a market run by a small number of firms that together control the majority of the market share. According to Solar Energy Reports, 2013, a total of 15 solar companies are manufacturers and are responsible for 58% of the market. With the ability to control production costs and manage the supply and demand, these are the most sustainable and profitable solar companies. In 009, the photovoltaic solar industry generated $38. 5 billion in revenues globally, which includes a market increase from $46. 3 billion to $96. 8 billion in 2014″ (Solar Energy Reports, 2013, p. 3). Renewable and sustainable energy is a rising industry and the need constantly to increase the efficiency is crucial to its success. To increase the efficiency of the solar panels, Solar Clean is a new service targeted to solar panel owners to clean and repair damage brought on by storms or customer interference.
Elasticity of Demand Currently, in 2013, the solar industry is a “$77 billion solar-energy industry ND is forecast to expand the most since 201 1” (Orca, 2013, p. 6). The industry relies heavily on technology to gain and retain customers. Because technology improves the actual cost savings to the customer, the solar industry has had to find ways to continually increase efficiency by spending less and producing more. One of the massive improvements of solar panels that research has identified is the physical condition of the panel.
If the panel is dirty and damaged from the elements or abuse, they will not save the customer as much money in energy costs. Pricing Relationship to Elasticity Price elasticity measures how much the demand shifts when the price changes. The demand is elastic if the quantity demand changes substantially in response to a price change and inelastic if demand shows little or no change. The pricing for solar panels had decreased over the past few years due to more efficient technology and government subsidies, as demand has increased.
This pricing shift further reinforces that solar panels, and therefore solar cleaning services are elastic. For solar companies to remain profitable, they must find ways to reduce production and operational costs. The Solar Clean service is reliant on existing solar panel customers. If prices are low and more solar customers purchase or lease solar panels, Solar Cleans demand increases. The value proposition is that their solar panels are more efficient if they are clean and serviced regularly. The more Solar Clean services the panels, the more the customer will save on energy bills.
Changes that Affect Marginal Cost and Marginal Revenue Solar Clean makes money the more times they service each customer. If they service panels at a house or business once a month, they will break even cause they have to spend more time cleaning, adjusting, and calibrating the panels. If serviced weekly, the cost decreases as each Visit takes less time and more customers are serviced in a day. The marginal cost of the solar panel cleaning service is $25 for a regular visit of a house or business with one to four panels. If the cleaners come twice a month, the cost is $40 for two visits. The marginal cost is the difference, S 15.
Increasing the revenue above the marginal cost is the way to recover a profit. Marginal revenue calculates the amount of money Solar Clean makes from selling one additional cleaning visit r the increased profit per item as the cleaning visits increase. The best way for Solar Clean to increase profits, marginal revenue needs to exceed the marginal costs by selling additional cleaning services. “If marginal revenue equals marginal cost, then the firm produces the profit-maximizing output quantity. If marginal revenue is less than marginal cost, then it can boost profit by increasing production.
If marginal revenue is greater than marginal cost, then it can boost profit by decreasing production” (Investments, 2013, p. 1). Suggested Invoicing Strategies The invoicing strategies for Solar Clean are focus on increasing sales and managing operational expenses. Solar Clean has an aggressive marketing campaign to work with current solar customers and show them the value of the cleaning service and how much money they can save by keeping their solar panels efficient. The company also focuses on keeping production and operational expenses in line by hiring extra workers on a part-time basis when sales and industry demand spikes.
Because the solar industry changes quite often Solar Clean must react to immediate changes. To accommodate ate changes and availability by region, Solar Clean offers geographical pricing to reflect the demand and variation of whether conditions in each state. Solar Clean also offers price discounts and allowances based on the state subsidies and quantity of each customer’s purchase. Solar Clean offers promotional pricing along with the solar panel companies as well as a free trial basis of one month to prove customer savings.
Invoicing Strategies that Increase Barriers to entry Invoicing strategies that increase barriers to entry for Solar Clean include keeping current with the customer needs and demands. Technology is changing at a rapid pace in the solar industry and meeting the changing needs of the customer is vital. Solar Clean must also partner with all solar panel producers so that their services are competitive, superior, and turn-key. Solar clean must be able to facilitate customer referrals, exhibit ethical, and competent selling practices while cleaning and servicing the panels on time, on budget by qualified personnel.
In the short-term, Solar Clean can increase advertising and work with government subsidies and policies. In the long- term, understanding the needs of the customer to consistently and imitatively keep the prices low and the panels as efficient as possible IS ultimately what will increase the sustainability of the company. The barriers to entry for Solar Clean include the brand awareness, intellectual property, customer loyalty, exclusive agreements, and government restrictive policies.
Researching, identifying, and addressing these tactics will allow Solar Clean to create a competitive strategy so they will be able to address any competitors entrance into the marketplace. Research is the best method for understanding and working with the competition. All of these factors nutrient to the number of competitors who will be able to enter into and stay in the solar panel cleaning industry. After a thorough analysis of the solar cleaning business and a concise strategic plan, Solar Clean is confident that the company will thrive in this ever-changing market.
Fixed and Variable Costs The variable costs of Solar Clean include the number of customer cleaning service calls sold (6,000 x $EAI = $1 ASK), sales commissions (ASK), maintenance equipment ($K), parts/materials ($K), cleaning supplies ($K), and wages of the part-time employees ($3,500). The total average variable cost is $122,500 per month. The fixed costs are the office rent ($K), insurance (52,500), business license ($1 50), trucks ($K) and wages of the permanent full-time employees ($1 K). The total fixed costs for Solar Clean are $21 ,650 per month.
The total profit of Solar Clean per month is $100,850. Changes in the Solar Clean operation that alter these costs are the extreme spike or dip in the industry. Solar Clean must sign aggressively current solar users to shield them from such industry variations as well as add new clientele to experience growth and increase revenues and profits. Any change in the costs, sales volume or price of the cleaning can affect the net profits of Solar Clean. Global Economic Conditions The current global economic conditions in the United States are affected by population growth.
Population growth affects the number of houses and businesses which increases the demand for power. According to the US Census Bureau, “the U. S. Population increases by 0. 9 percent per year from 201 1 to 2040; the economy, as measured by GAP, increases at an average annual rate of 2. 5 percent; and total energy consumption increases by 0. 3 recent per year” (US Energy Information Administration, 2013). Subsequently, with the rise in population, energy use increases, but the intensity shows a decrease when measured by the use per person.
In the future, appliances will become more efficient and solar power will become more desirable to consumers while also more competitive as an industry. The need for more efficient solar panels will drive the customer base and exposure of Solar Clean. Local Macroeconomic Indicators The local economic indicators in the United States shows a definite need for an increase of solar power. With world GAP rising by 3. 6 percent per year, world energy use will grow by 56 percent between 2010 and 2040″ (Siemens, 2013).
The united States, especially the deserts of the Southwest, experience a high amount of sunshine per year, optimal conditions for solar power. Government subsidies, federal tax credits and cash grants allow more households to afford solar energy. For example, “In California, the U. S. Solar leader, utilities must get one third of their electricity from renewable sources by 2020” (Rooney, 2013). Government fiscal responsibility and stabilization of he economy (including low unemployment and controlled inflation) are important for the Fed to manage so the economy can grow without reaching a breaking point and complete desalination.
Local Economy’s Stage in the Business The solar industry is in a growth phase. Manufacturing challenges include producing more for less to meet rising demand and competitive pricing. With the increase of demand, consumers will be in the most favorable position. Manufacturers will need to become very efficient with high quality and superior technology. To compete with the best prices, they will have to educe their profit margins. Service and reliability will have to set the solar panels apart which will position Solar Clean to offer these services as an affiliate or an outsourcing partner.
The solar industry, “expects to increase performance and lower price. Mature markets go through business cycles, and solar is in its first big one as an adolescent” (Wesson, 2013). The innovation and generational improvements are what will make solar energy attractive to investors and priced for consumers. Effects of the Current Credit Market Conditions The U. S. Government has long seen “the need to support the solar energy infrastructure through the U. S. Tax code” (SEA Issues & Policies, 2013).
The government also used to have a number of programs and policies available to provide incentives to the consumer participation form the Solar Investment Tax Credit, Depreciation of Solar Energy Property and Solar Tax Exemptions to name a few. With the budget deficit, many solar incentives have diminished or disappeared. The solar industry is still expanding in the united States, ” In 201 2, the number of solar project installations increased by approximately 60 recent year over year, while the costs of the technology itself dropped by an estimated 10 to 20 percent” (Honking & Hurwitz, 2013).
One trend in the Southwest is since there are so many days of sunshine; there is an abundance of solar providers. With the tax cut eliminations, solar companies have to consolidate the number of smaller companies by mergers and acquisitions, which will combine the purchasing power and client base. With fewer companies in the marketplace, Solar Clean can focus the marketing efforts with a much more targeted approach. This strategic effort will immediately allow Solar Clean to increase the company’s exposure and easily expand on a national level into the territories of these existing solar companies.
Every company has room for improvement, but with the carefully detailed strategic plan and extensive research into the market, this economic analysis concludes that Solar Clean is a viable service and Wise investment. With realistic goals, a tight operational budget, pro-actively mitigating risk factors and a close watch of the economic climate and industry, Solar Cleans position in the industry is to propel into the sustainable true with profits and revenues to please investors. The solar industry future is proverbially bright and will be in a growth cycle as the companies mature and acquire each other.