Hunting Like a Hawk in a New Era of Funeral Economics

By: Danielle Thacker
Monday, September 26, 2022

Settling Into the New Routine

The funeral industry was one that was rocked by COVID. It was one of the industries that felt the greatest impacts and the greatest disruptions. Everyone in the funeral industry had to learn to “serve differently” than they had in the past as our constant, steady and stable industry was upended. An industry that had previously been contracting suddenly was shifted into hyper-expansion mode thus causing outages, shortages, lack of labor, increased prices and more.

In the last couple of months, we have started to return to a life in the funeral industry very similar to preCOVID. While the possibility definitely exists of future COVID spikes and even of future pandemics – we have to start conducting our businesses in a manner in which our individual business’ profitability is not contingent on the heavy mass of volume created by the COVID era waves. If that extra volume happens to come in, then that becomes the icing on the cake – not the cake itself.

Volume and Case Count

Let’s talk about volume for a minute. All of the following statistics are pulled from the Excess Death Statistics (with and without COVID) report published by the CDC. The week of January 22nd saw the highest number of total deaths for 2022 thus far seeing an estimated 85,000 deaths both from COVID and non-COVID related reasons and the week should have only seen an estimated 62,000 deaths. This makes the death rate over 23,000 more than what was expected in normal, pre-COVID times. By contrast, let’s take the week of June 25th – this week should have seen around 55,000 deaths, but only saw around 45,000 – thus a difference of 10,000 less deaths than what should have been expected without COVID.

For the foreseeable months, a year, two or maybe more, I predict the death rate is going to be below the average or standard it should be based upon pre-COVID trend lines. The volume is not going to come as easy as it did in the COVID-era. Remember back to 2019 when the death rate was tremendously off from years past – funeral homes profits were shaken due to the lack of volume. Even missing out on 5 calls in the year can dramatically affect the cost of overhead per call for the average size funeral home. 

Because the death rate was so tremendous in 2020 and 2021, I also believe that we will see shortages in the death rate far greater than that of 2019. As an example, if a 100-call funeral home was off by 5 calls in 2019 from their pre-COVID average; now they may be off 10 calls from their pre-COVID average. Why? A lot of people “pre-died” (to put it bluntly) during COVID. Many people who weren’t supposed to die for another 6 months, year, 3 years or 7 years died already due to COVID. 

Rising Fixed and Variable Costs

The basic law of economics states that if there are no adjustments made in sales price or no reduction in costs and volume goes down, overhead per unit (call) rises. The funeral industry needs to be expecting a dramatic rise in our fixed costs inclusive of property (mortgage/rents), electricity, water, and more – they are all increasing at the same time. Not only are these costs rising, but the # of calls the average funeral home is decreasing – thus making the overhead per call increase dramatically.

We also have variable costs to think about too as they have also been prone to increases. Labor has been one of the largest impacted cost centers of any business in the United States. Then you also layer increased costs in fuel (both for automobiles and crematories), casket costs, costs for shipping items, urns, surcharges and more! 

With both our fixed and variable costs rising, funeral directors need to carefully watch and monitor increases. They must act like a hawk, hunting and seeking opportunities to control costs and bring in more revenues (which does not always happen in the form of a price increase). 

Hunting like a Hawk

Think back to year 2000 – the funeral industry was based on relationships and loyalties. Funeral homes aligned themselves with vendors and sales representatives that were personally vested in their business. Those sales representatives were in and out of the doors of the funeral homes, on the front lines understanding not only the business, but the goals and the family and people who ran the business. Because of the firm footing of the relationship, owners and managers of funeral homes trusted the guidance of vendors implementing new products, new services and more.

Fast forward over 20 years to 2022. Many funeral suppliers and vendors have pulled back and transitioned their businesses away from the face-to-face relationship. As that familiar face that had been coming by your door for 20+ years retired, they handed you a shiny picture of your new inside sales representative who will never be seen at your funeral home; or perhaps they have moved to a model where they attend conventions for face-to-face interaction – but never to be see on the front lines. 

So where does that leave your funeral home? Sales Representatives used to bring by new ideas not only of their companies products or services, but also of best practices of other funeral homes. What they have seen that works and what they have seen that doesn’t work – fast forwarding your efforts on a path of success rather than a path of trial and error.

This now leaves your funeral home as a solitary hawk fending for yourself without the support, knowledge and expertise that you are used to. You now have to hunt and find the paths to success alone without the interconnected relationships that existed 20 years ago. 

Hunting Down Success

First realize that our expectation of success must change and it will not mirror what it looked like to your father or uncle 20 years ago. So, what does success look like? It looks like stabilization in a turbulent and volatile funeral market and continuing to seek opportunity to generate additional revenue while maintaining a firm grip on costs. Regularly measuring the four following KPI’s (key performance indicators) can have a dramatic effect on the success of your business .

Year over Year Stable Profit Margins Profit margins are constantly shrinking due to increased competition, increasing cremation and a consumer who does not want to spend at the same pace as costs are rising. While your father or uncle considered a 5-6% increase in gross profit a win, your win may look like a simple stabilization in holding your margin over the course of three years. 

Stable Call Volume

We all want to see year over year increases, but stability is perfectly fine too – especially coming out of the COVID era. If a funeral home maintains and keeps the call volume that it had over COVID era times, it really means the funeral home is growing its market share significantly as the death rate declines. Even if minimal call volume is lost, it likely means that the funeral home has still grown its market share. A funeral home owner and manager needs to keep a firm grip on their call volume in order to keep the overhead per call in check. And, if market share dips, work as proactively as possible to raise it (but not by lowering price). 

Controlling Costs

Funeral homes will need to start evaluating their businesses hunting for opportunities to save money. If call volume goes down, funeral homes should work to manage the hours of their part time staff accordingly. In addition, funeral homes may need to evaluate all options as far as vendors to partner with. There may be opportunities to save money with other vendors and while breaking the relationship is hard, it may be necessary for the health and viability of the funeral home moving into the future. 

Increasing Revenue

Of course, when every funeral director hears the phrase “increasing revenue” they think of raising prices or think of that awful concept of having to sell. However, for most funeral homes it simply means a shift in the marketing mix: what products and services are being presented. Take caskets, for example: if the lowest priced casket in the selection room is $1,795 then the next lowest is $2,895 – for some families, $2,795 is simply too high to stretch. However, if there was a more affordable price point at $2,395 the family would spend more. This happens with not only caskets, but also cremation packages. Price gaps are a merchandising killer whether it be in services or products offered. Fixes such as these can be “found revenue” – but you have to be a hawk to seek out these merchandising issues and hunting down their fixes. Just think – you can increase revenue without having to sell or raise prices!!

The funeral industry will continue to be challenged over the short-term future, but these challenges can be overcome with a firm grip on your business and actively seeking ways to improve it. Be the hawk within your own business – hunt down problems and find solutions!

Danielle Thacker serves as VP of Sales & Marketing for Thacker Caskets. Danielle leads a team of sales representatives throughout the East Coast and Midwest. Visiting hundreds of funeral homes on an annual basis, Danielle enjoys learning the challenge that each individual firm faces and creating solutions that help them be the strongest small business they can be!

 

 

 

 

 

 

 

 

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