Has Inflation hit your bottom line yet?

April 12, 2024/Business/

The American Motors Corporation Gremlin

There is no doubt that the cost of inflation in doing business will affect the bottom line of businesses unless they do something to counter the effect. It’s a pretty simple equation in the “View from the Top” that if business sales are the same then the upward inflationary costs of labor, utilities, advertising, and the like will decrease the bottom line if you operate in the same way that you did before inflation.

When you are in the funeral home business with high fixed costs if those fixed costs go up then you either have to raise prices or do more services to make up for the loss of margins because of fixed costs. . . .or you can just choose to bring in less profits for the same efforts.

I’ve often thought of funeral expenses as both a “necessary” consumer purchase — because death will come. But I’ve also thought of the idea that once that purchase has to be made it then becomes more of a “discretionary” consumer purchase — because the consumer has a choice on what he spends on that service such as choosing between a casketed burial and/or a cremation service.

In that regard, I’ve often thought that it is a little like the automobile industry. Where I live, in rural America, a vehicle is almost a “necessity” but within that necessity category the consumer has a wide choice of “discretionary” options. I did a little research and back when I was in high school the American Motors Gremlin was all the rage of low-cost buyers — It could be bought new for $1,667 when the same year a Cadillac Sedan DeVille went for about $11,000 new. . . . So, the discretionary buyer could get new wheels for about 15% of a new Cadillac — that would be a big discretionary savings!

And, when the Arab oil embargo hit America in 1973, bringing with it higher gas prices and an inflationary upsurge, the AMC Gremlin was purchased by over 171,000 Americans in 1974 — a 40% increase over 1973. I think that figure hints at the “discretionary” purchasing choices by Americans when hit with “wallet-tightening” inflation.

If you look back over that same time period you will see that cremation as a disposition choice in America also kept growing. As a matter of fact, it doubled in popularity during the inflationary period of 1975 to 1985 and then took 15 years for it to double again. While there were undoubtedly a number of variables for this 10-year surge, inflation and the cost of casketed burials more than likely played a role.

And, I think that history is relevant today. We learned on this past Wednesday that inflation is not yet tamed and may be more difficult to tame than we expected. It is my opinion that many Americans who have a death in the family will continue to look for ways to save in a discretionary way on their death care expenses.

I think that is already happening in the “discretionary” choice of automobiles which is leading to a decline of profitability at automobile dealers nationwide — another type of business with large fixed expenses similar to funeral homes. Here is a graph that represents the transaction prices for New Vehicles over the past year. . . .

So, this is not a real scientific study, but I think it shows that in an inflationary time period if you do nothing to slow up the potential loss of discretionary revenues coming into your place of business, the inflationary pressures on what you spend will draw down profits. I think it shows a view from the top that if you are not increasing prices, expanding your reach for new clientele, or containing your costs, the potential discretionary “lower-spend per client” can have devastating effects on profitability.

It is probably a good idea to make sure that you know the “ins and outs” of your current revenues and expenses and understand the changes that may be taking place. If you don’t, margins and eventually profits are sure to suffer.

More news from the world of Death Care: