Business

Being Efficient versus Cost Cutting

So many things about business fundamentals cross over from one industry to another.  I’m writing this article on Sunday and thinking about a meeting I will have tomorrow in the role I play as Chairman of the Finance and Operations Committee of a Big Ten university.  We are working on the budget and tomorrow I’m meeting with the President, the CFO, and one of my board colleagues as we work our way thru the $4.0 billion budget that has to be approved come June.  It is a valued exercise that we need to go through each year as we look at the expected revenue resources and expense items we have to work with.

We are all looking for “new money” that we can use to pay for what each of us believes should be a new priority of the university.  Some in the meeting will advocate “cutting” out some staff positions or programs to get the money they believe is necessary.  Others, like me, usually look to how can we make our system more efficient by negotiating better deals with our technology vendors, food vendors, and the like.  For instance, as a consumer, you probably pay a fee each year to have a Microsoft operating system on your computer.  We also pay them on behalf of our students and staff and while Microsoft and other software vendors have products we really like to use, as a university with about 100,000 students, staff, and support workers, we have some clout to get better (more efficient) deals from them.  We also have the strength of a 500,000 person alumni network that we can advocate for.  So, in a purchase from a software vendor, we do have some clout to negotiate.

You as a funeral home owner, have some clout in some places too.  Every year that you do your budgeting you should concentrate on what I call “widening the moat”.  By that phrase I mean, make a bigger difference in the number between revenues (which you should aim to grow) and expenses (which you should aim to keep in check).  One way to do that is not necessarily cutting out costs, but being more efficient with costs.

Do you advertise in your local newspaper or on your local radio?  If so, do you just pay the rate they ask or do you negotiate a rate?  Getting a lower rate might involve signing up for six months or a year at a time, but what are the odds you won’t be advertising in the next 6 months to a year.  What about looking at your cell phone bills or internet bills. . . . are there better offerings out there now as compared to when you first signed up?  And what about caskets?  Have you asked your suppliers what kind of arrangement could be worked out if you agreed to buy only “their” brand for the next year or 18 months?

My point of this exercise is that to widen that margin of profitability, it does not always have to be just about raising prices or cutting services.  My guess is that you can become more efficient in what you pay some providers.  Look at it from their point of view. . . they have acquired you as a customer and have considerable expense in that objective. . . . they surely don’t want to lose you now.

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3 Comments

  1. Margin management should not be just about expense efficiency. It should also be about smart strategizing to increase revenues. In an industry with 71% fixed costs, adding just 5 more calls at a 100 call firm (NFDA stats) increases total net profit by 33%! A funeral home can do this year after year by presenting a value proposition –not by lowering prices!- to families that is more compelling than those presented by their competitors. The consumers you want go online to research everything. Show them that you deliver the greatest experience through high resolution photos, videos, testimonials and descriptions that put your firm head and shoulders above the rest . Many funeral homes will not make this turn. Here is a great opportunity to take market share and increase margins.

  2. When looking for a better deal, it doesn’t have to just be a lower price. What other “goodies” can you get from the supplier? For example, local radio stations receive products to give away from other advertisers in exchange for extra spots (barter). While mostly they are meant for on-air giveaways, the station has some they can use as they wish. So ask if they have any movie tickets or restaurant coupons you can use with your staff. And from your casket supplier, how about free fixturing, consignment or sponsoring off-site training at a nice restaurant.

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