Energy Audits: Remodeling Profit Center vs. Loss Leader

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Energy audits are one of the popular cure-alls in the remodeling industry these days as firms look for new ways to capture business.
Some remodelers are opting to use them as a loss leader, while others are finding the audits a way to generate profit and drive more work.
Chris Bellanca, president of The Avenue Builders [1], a full-service remodeler in Alexandria, Va., says about half of the company’s revenue this year has come from energy audits and related retrofit work. That’s up from 25 percent last year and he expects it to be in the 75 to 80 percent range in 2011.
The energy audits themselves are profitable, but 70 to 80 percent of the audits also lead to larger projects for The Avenue Builders.
The company has been remodeling homes – with an emphasis on additions, kitchens and other larger projects – for more than a decade in the Washington, D.C., area, but Bellanca first realized the business opportunity of green when the company built a custom home in 2007.
“Because the market was turning, we decided to get the Energy Star label on it, to help us sell it,” he says.
After that, Bellanca learned more about the movement by working with the EarthCraft program, then became a HERS rater and earned his BPI certification as well. The company has now been offering energy audits for 1 ½ years.
“I built a house that was 75 percent more efficient than the normal house, and it wasn’t that hard to do,” he says. “With all these older houses inside the Beltway, it seemed like an area that we could diversify the services that we offer.”
While The Avenue Builders has built a successful model around charging for the audits, that approach doesn’t work for everyone.
Home Energy Solutions of the Triad [2] in Greensboro, N.C., experienced a lot of trouble getting homeowners to embrace paying for an audit, says CEO John Redmond. The biggest challenge was that homeowners didn’t understand what an audit is, and explaining it in a marketing piece or radio spot proved difficult.
After several months of extensively marketing and trying to sell the audits, the company changed gears and started offering a free home energy assessment as a way to get into the home.
“From there … it just gives us the ability to explain the process, explain why we’re different in the market,” Redmond says. “We’ve changed our entire business model and our work has risen exponentially since.”
The company offers a free 50-point assessment, scoring each on a 1 to 5 scale. At that point, the company suggests additional work and a more detailed audit to prioritize the energy retrofits.
“The whole key is it’s creating the opportunity for us that we were not getting before,” Redmond says.
Energy audits and retrofits will continue to be an important part of the business and aren’t just a green fad, Bellanca says.
“A lot more people are going to be spending money to make their houses last longer,” he says. “There are more customers that will buy that product than a new kitchen or a new bath.”
To that point, Bellanca – who currently does all the audits himself – is hiring another employee to do nothing but audits.
“That’s where a lot of the demand is,” he says. “We’re still doing the remodeling work, we’re just not focusing the marketing dollars there. We’re getting more work from the energy audits.”
Those audits and retrofit projects are even leading to larger remodels for the company, with four current addition/kitchen and bath clients that came in spending $5,000 to $10,000 on energy retrofit work.
The concern is that as the business opportunity grows, so will the number of people looking to take advantage of it, Redmond says.
“The challenge is that anyone can go out in a truck with an infrared camera and say they’re a home energy auditor,” he says. “In North Carolina, there’s no state certification, so we’re seeing that competition.”
Bellanca agrees that’s a concern, but says that he thinks the best companies will rise to the top.
“All that shakes out over time,” he says.