Why the Consumer Based Model does not work in the LED Commercial Lighting Industry
January 15, 2020
We live in a consumer society. As buyers, we have bought into a “consumer model”. Simply put, we buy cheap, so we get… well, we get cheaply made goods; goods that simply don’t last. However, because the products are so cheap, we are willing to simply throw the product away when it no longer works and buy a new one.
The saying “They don’t make ‘em like they used to” is true. But it’s true because that is what we, as consumers have demanded. Here’s the problem though, the consumer model does not always work to the benefit of the consumer. We are so used to the model that we don’t pay attention to when it works and when it doesn’t. This begs the question: How do we know?
For a business, it comes down to Return on Investment (ROI). If the ROI is greater than the cost at the time of replacement of the product, then the consumer model worked to the benefit of the consumer (the business). If the ROI is less than the cost, the consumer model didn’t work.
Here’s an example of an ROI calculation from industry; commercial LED lighting. This business plans on using the energy savings of LED lighting to pay for the capital investment of replacing their old HPS parking lot lights with new LED fixtures (this is a real example the business published). Note: This example does not take into consideration inflation for lighting maintenance (i.e. replacement of fixtures due to premature failure).
- Current Annual Energy Costs for HPS Lights: $11,367
- $48,640 Investment
- Projected Annual LED Fixture Energy Costs: $3,086
- Projected Annual Energy Cost Savings: $7,400
ROI = $48,640 / $7,300 = 6.6 Years rounded up to 7 Year ROI
Here’s the problem: their ROI calculation did not take into consideration the warranty on those lights is 5 years. That’s important to note because warranties are calculated by the manufacturer to determine the pre-mature failure of a product. In other words, a manufacturer will stand behind a product up to the point that the product is expected to fail. So, these lights are expected to start failing in 5 years – well BEFORE the ROI is reached – and that’s based on this very simple calculation that did not take into consideration the maintenance costs of fixture failures – including the inflationary impact on labor and replacement fixture costs. What this means is the ROI is longer than 7 years and will never be achieved.
The Future Energy Solutions business model solves this problem for businesses. We do it by taking the built-in obsolescence driven by the consumer model out of the LED lighting fixtures we manufacture and deliver to our clients – allowing us to stand behind our fixtures, not for 5, 7, or 10 years – but a full 15 years. What’s more, because we deliver lighting as a service, your business has ZERO Capital Investment and ZERO lighting fixture maintenance costs. Our lighting service is paid for from a FIXED portion of the energy savings your business will realize by converting to LED lighting. The model is simple:
- No Capital Investment
- No Fixture Installation Costs
- No Fixture Maintenance Costs
- Real Energy Savings back into the business bottom line
At FES – we are driving the next evolutionary step in the commercial lighting industry by delivering Lighting as a Service through our Gold Initiative Program. Contact us today to schedule a free lighting audit of your business to see if you qualify for our Gold Initiative Program.
The evaluation is free – the savings are real.