The business news last week was centered on the Producer’s Price Index (PPI) rising 0.6% in the month February, which equates to an annual 7.2% inflationary rate.  That reading, after being lower and even negative for a couple of months prior,  has caused many pundits to opine that getting rid of inflation in America may be a “stickier problem than once thought”.

 

Here’s a definition of the PPI and why it may have an effect on the products that funeral homes sell:

“(The PPI) is a collection of indexes economists use to measure the average change over time in domestic producers’ prices for their products or services. This information provides a picture of the marketplace from the perspective of sellers.

 

So, from my point of view, it indicates what the cost of producing goods will be from the suppliers who sell to funeral homes. . . such as casket companies, vault companies, urn companies, paper goods companies, chemical companies, and so on.  Again, from my point of view, the reason it is so important to funeral homes is that it indicates, with all other things being equal, that in time your costs for those wholesale products will be going up and unless you can mark the retail price of those products up to at least match the increase in the wholesale price rise, you risk going backwards on profitability.

 

And, in a world where the consumer is very conscious of “costs” for what they are purchasing, that increased mark-up gets harder and harder to accomplish.  Combine that with the Death Care consumer’s thought process of potentially reaching a limit on what they will pay for an earth burial service and you can see the consumer having a greater propensity to choose a lower cash-margin alternative such as cremation with services or Direct Cremation as a result of these price increases.

 

Funeral Director Daily take:  I’ve been involved in many businesses in my day, including owning and operating a funeral home for about 35 years.  In all of those businesses when you see input prices, such as products and labor, rising it makes for difficult decisions on how to move forward with your pricing.

 

There are options, especially if you are profitable at the time, to simply stand pat and absorb those costs without raising prices for the sake of retaining clientele. Or, you can raise prices to retain your margins. . .but you do that with the knowledge that the pricing may drive off some customers or,  in funeral service,  change them to a lesser cost and lower margin service.

 

That is the “between a rock and hard place”, as is the expression that many funeral homes find themselves in.  In today’s environment, holding on to customers and on to margins is especially critical if you are a business that has debt that has been in an adjustable rate loan environment.

 

Another factor that may weigh in an owner’s mind is “What is the consumer’s position”?  For instance, if they believe that their consumer is in a very good financial position — which many American retired people, who are a funeral home’s base customer have traditionally been in — the ability to raise prices is probably there.

 

However, the University of Michigan Consumer Confidence Survey also came out last week and that shows that consumers are slightly less confident about their situation than they were a month ago.  In contrast to a year ago, however, they are much more confident.

 

One thing I do know is that funeral director independent owners are very skillful and knowledgeable about their businesses.  They are on Main Street virtually everyday and, because of their interaction with local people, have a great feeling how their communities are doing.  When it comes to these types of decisions on pricing, I’m pretty certain that each funeral home owner has a great instinct on what to do.

 

I was like that.. . . .I took in all information, input, and data that I could, but then let my instincts take over.  And, I never did anything in a hasty manner. . . always making slow, thoughtful decisions.  That’s the best advice I can give to owner/operators on on these type of “between a rock and hard place” issues

 

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