Is cremation increasing in your market? Does your service charge for a direct burial amount to significantly more than for a direct cremation? Are families who choose burial buying down? If you answered yes to any of these questions, you need to take a closer look at your business in 2017.
In a survey conducted by David Nixon in 2016, the average revenue per call for funeral homes is flat and trending to be negative in 2017. The cause of this is pretty simple – the revenue generated by a cremation call is about half of that of a burial call. More families switching from burial to cremation leads to less total revenue for the funeral home. Funeral home owners have been persuaded by industry vendors, to simply raise their prices to offset this revenue and profit loss. However, this solution is not sustainable – with many funeral homes sharing a sentiment that they have raised prices as high as they can, hitting a glass ceiling within their community.
Moving forward, funeral home owners will need to find a sustainable way to continue to create profits in the wake of increased costs of doing business – a problem many small business owners are faced with.
Next to service charges, burials are the second largest revenue generating source for a funeral home, but outside of payroll they are also the second largest cost for a funeral home. It’s important for funeral directors not to take their eye off the ball with regards to burial caskets. If your caskets are priced inappropriately, there could be significant impact on the total revenues brought in the door, but if you pay too much for caskets this could significantly increase your cost of goods sold line – both flowing through to the bottom line.
Any funeral home, no matter how they show and display caskets should target a segment of burial caskets that includes 18-24 total selections. More selections creates confusion, and less selections does not allow the funeral home to properly merchandise the retail price points across a varied product line. This product line should target a profit point your firm is comfortable with. This profit point can and should change over the course of time based on the needs of your business. The goal of your casket selection should be to meet the personal and financial preferences of the community, while being efficient at generating revenues and profits for your funeral home.
A common problem I find within funeral homes is that the selection of caskets is priced too high for the market it serves. For those who have showrooms, an increase in caskets selected outside the selection room through a book or other source and/or an uptick in minimum metal sales can by symptomatic of a casket selection that is over-priced for the community that the funeral home serves. When either of these two things happen, it typically results in families jumping further down the price scale than what they can actually afford.
For example, let’s say the first casket in the selection room is priced at $2,300 and the family is comfortable spending $1,900. The family asks the funeral director if there is any other caskets that are less expensive. The funeral director automatically jumps to a casket at $1,400 shown in the book. The funeral home just potentially left $500 of revenues on the table – not to mention the profits to go with it. When this happens 40% of the time the funeral home makes arrangements with a family, this has a significant impact on revenues and profits.
When this problem happens, funeral homes have two different options: a) do nothing and watch their business erode into primarily minimum metal sales or b) re-merchandise their selection room to meet the financial needs of the average family it serves.
The first step in remerchandising is to seek out alternative supplier options that can provide a more competitive wholesale cost on caskets. Partnering with a vendor that can create cost savings will allow retail pricing flexibility without sacrificing profit. Work with your vendor partner to pick products that are cost competitive and offer progressive visual appeal – using eye appeal to incentivize families to step to the next price point.
In the funeral home example above, if a funeral home can start its product line at a $1,600 retail price point, the family originally comfortable at $1,900 will now fit within the traditional product line the funeral home offers in its selection room. As they walk around the selection room, they may even purchase a $2,000 casket they like the visual appeal of better. In this example the funeral home has generated an extra $100 in revenues as opposed to leaving $500 on the table.
A funeral home that can keep a family within the selection room/traditional offerings and reduce the number of arrangements being made outside of the traditional offerings will ultimately create additional revenues and profits by not leaving that money on the table. Gearing down the product line to meet the needs of more families can ultimately strengthen the funeral home’s financial statements.
Often times gearing down means using a product line that contains all the value features that a family can appreciate such as color, theme and overall eye appeal. However, it may mean stripping away value features today’s families cannot appreciate such as gauge and round ends. Certain casket companies offer 20 gauge versions of steadfast 18 gauge industry designs – sometimes at half the cost! This is a great way to reduce your overall wholesale cost, bring down the price to the family, yet profit the same! Take this concept and multiply it across the bottom 1/3 of the selection room and the funeral home now has a product line that is back to being relevant to the community the funeral home serves!
Incremental increases in revenue mount up quickly over 60, 70 or 80 burial calls per year, and this will lead your funeral home to buck the trend of stagnant to declining average revenue per call! Generating more revenue year after year is more important than ever as cost of doing business continues to increase! Reevaluate your business and don’t simply let service and merchandise price increases be your sole plan to increase your funeral home’s revenues. If you haven’t reached the glass ceiling, you are getting close and better have a backup plan! FBA
Danielle Thacker currently serves as VP of Sales and Marketing for Thacker Caskets. Along with her siblings she has grown up in the business, but began work full time in 2007 following the completion of her undergraduate degree from Villanova University. Danielle leads a team of Thacker Sales Consultants across the East Coast and Midwest and primarily spends time traveling the road and meeting with hundreds of funeral homes on an annual basis. She started The Funeral Gal in 2015 as a way to broadcast solutions to common problems that funeral homes face and also creative, progressive ways to do business. She can be reached at (800) 637-8891, or by visiting www.thackercaskets.com.