The other day Funeral Director Daily published an article on the transformation of Hillenbrand Industries. We explained that while the trajectory has not been perfect and steady – as a matter of fact it has sometimes been downright rocky – they have now transformed their business and business model so that their founding business, caskets, makes up only 30% of their revenue and they have found a way to be profitable at that figure.
In researching that article I came across a figure from a Hillenbrand investor presentation that showed some interesting statistics. One of those statistics shows the fact that earth burials numbered about 1.80 million in the U.S. in 2010, but are estimated to number only about 1.10 million in 2030. That is a drop of about 40%, but more importantly it is a drop of almost 3/4 of a million caskets that will not be sold to consumers — sales where a funeral home would profit.
The other really interesting statistic that I noticed in that presentation was the dollar appropriation via product that was spent on death care “products” in the United States and Canada. Hillenbrand estimated that $3 billion was spent on “death care products” and that 49% of that $3 billion was spent on caskets. Furthermore, only 12% was spent on cremation related products – 12% of a $3 billion industry is only $360 million – that is not a large number for a national industry. You can see Hillenbrand’s presentation here. . . the information I have mentioned is on Page 17. Think about that. . . .cremations passed casketed burials in the U.S. in 2017, yet 49% of the dollar volume of products spent in death care is still on caskets (the minority of deaths) and only 12% of the total dollar volume is spent on products for the majority of deaths. . .cremations.
As casket sales continue to slide, Batesville reported that they have seen sales drop from $574 million in fiscal 2016 to only $551 million for fiscal year 2018. . . a drop of over 4% in just 2 years.
So, what does that mean to a funeral home operator? So, let’s say that in 2010 our operator did 200 calls and they were a 50/50 split (100 each) between earth burial and cremation. If that operator averaged an $800 mark-up on a casket, then he pulled in $80,000 of margin on casket sales. If he had the same margin percentage on cremation product sales he pulled in about $200 margin on each of those 100 calls for $20,000 total and a grand total of “product” margin of $100,000. . . .a $500 per client average.
In 2030, using the statistics provided on burial vs. cremation his firm has went to a split of 60 casketed funerals and 140 cremations. Using the same static margins (for comparison) our funeral home owner is bringing in $48,000 ($800 x 60) in casket margin and $28,000 ($200 x 140) in cremation product margin for a grand total “product” margin of $76,000. . . almost 25% less than earlier – and only a $380 per client average.
And, that is only the “product” margin. It’s also no secret to us that the services that we provide and charge for cremation clientele is, in most instances, less than what we provide and charge for a full service funeral. Simply, that means that as the percentage of cremations grow, our professional service revenue per case will more than likely decline. And, as mentioned above, the double whammy will come from the lack of “product” sales and margins that today’s casketed deaths bring. As that continues to happen our funeral home operator will still have the high fixed costs of operating a full service mortuary — staff, property taxes, insurances, and the like.
Sounds pretty bleak, doesn’t it. I don’t necessarily think so, but it will take some ingenuity to think of what other services can we as the death care counselors provide better than anybody else and what do we have in staff and facilities that could be of value in our community. Some of the more creative operators in our industry are already seeing success with event centers including food and beverage sales that not only serve funerals and memorials, but weddings and anniversaries as well. I’m guessing that there are other ideas out there that those in our industry have not even thought about yet.
So, there is a lesson to be learned from Hillenbrand Industries transformation. You need to look ahead, spot the changes that may be headed your way and transform your business so that you can profit from them. Hillenbrand has found a way to be profitable at only 30% of revenues coming from their “heritage” business. I’m guessing that as your heritage business — funeral services and casket sales — dwindles in percentage, you can also find a way to transform and be profitable.