Business

Watch your costs to hold onto profits

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When I last wrote an article pertaining to inflation one of Funeral Director Daily’s readers contacted me to tell me that his studies indicated that funeral pricing increases did not always correspond with inflationary rates or the rise of the Consumer Price Index.  Sometimes funeral pricing was higher and sometimes it was lower than the CPI.  This gentleman is a pretty smart guy so I’m guessing he was correct with his study.

However, in a time of inflation many of the supplies a funeral home uses to offer its business to the retail consumer public will go up.  There is a lot of discussion on if the recent spike in the Consumer Price Index (CPI) is simply a reaction to our country going back to work while coming out of the pandemic or if the rise indicates a more long-term evolution in rising prices.

I’m a little simpler in my take on things.  I know that if my costs of doing business go up and if I don’t raise prices to cover those costs, then my margins will go down and the result is less profit for my business.  I think that is pretty simple.

Now, I also understand that the raising of prices is not done in a vacuum to just cover the costs without other variables being considered.  In thinking about raising prices you need to see where you are in relation to the competition  — I always liked being lower, but did not let that be a driving factor in pricing too low for a fair profit.  Also, a full service funeral home has to consider that if it raises prices on its earth burial services, might that drive more clientele to lower cost and lower margin cremation services?

Some prices are easier than others to see.  For instance, you can see that the average price of a gallon of gasoline, that you use in your hearses and removal vehicles has increased from $1.74 in January to $3.00 today.  We know lumber prices have increased dramatically so the cost of the paper products you use in memorializing clientele will soon be going up.  Steel prices have increased dramatically, 75% according to Whirlpool, so you can probably expect a price increase in caskets soon. . . . and energy, the ability to heat and cool your building, has increased 25% since last year.

But what about your vehicles?  You may not be in the market for a new or used removal van or flower van today so you don’t see it.  However, used car prices are up 21% since last year. . . . you need to price that into your costs today or when you do get into the market for a replacement you will have found that you underfunded for it.

Here’s also what I know.  Let’s say you have average overhead expenses of $2,000 per case case for 100 annual cases.  If you do nothing and your costs increase $100 per case, you will then have an average overhead of $2,100 per case and you will take home $10,000 less on the year than you took home prior to the inflation.

If you just raise your prices $100, then you recoup that cost, but you have to think of what effect that $100 increase will do to sales.  If it causes even two of your cases to go elsewhere or opt for cremation rather than earth burial, then you are behind the prior year also.

As I mentioned, there is no exact science to this exercise.  But, it is, in general, a mathematical exercise with a great deal of intuitive thought on your business and your clientele that must be injected to get it right.

My modus operandi, on an annual basis, was to look both at the cost structure of my business as well as balance the price increases so that they were annually less than 3%.  Building a better profit took a lot of work. . . it took negotiating with casket companies, it sometimes took investing in equipment so we could print our own memorial folders, or burn our own memorial CD’s.

Family owned funeral homes are generally small businesses and many funeral directors are not real comfortable with raising prices to their community members.  Remember, however, if someone else doesn’t pay for that commodity or supplier price increase in the cost of business, you do.

Here is an interesting article from Yahoo Finance on how many other companies are planning to combat the potential increase of long term commodity prices.

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