I received the following question today from a reader, Fred Kitchen, CFSP. I think it leads to a fascinating discussion which we all must consider for the years ahead in funeral service. I will post my reply here on the blog and invite any and all to contribute with a comment.
Question: What do you feel will be they key to market share growth and ability to maintain current market share going forward for funeral service?
Dear Fred,
Thank you for your question. I do not have a generalized answer because every part of the country goes through different demographic and business cycles at different times. Give me a funeral home and a scenario and I will gladly dig in and give them a hand sorting through the local issues.
Beyond this though, I think we have to push ourselves to ask a much more important question. What is it going to take to gather and maintain profitable relationships within the communities we serve?
In the past, I think we could often say that almost any volume was “profitable” volume. Except for the casket, each funeral cost about the same to run, took about the same amount of time to organize, and took about the same number of people and automobiles to get to the cemetery. As long as you collected your receivables, you would have some sort of profit at the end of the year. That was the beauty of funeral service for many years, good margins and profitability with relative ease. This does not happen automatically any longer.
Funerals vary widely in the amount of money they bring into a business and in the cost of putting them together. We cannot afford to assume that “volume” is automatically a proxy for profitability. For instance, a quality firm with a service oriented, well-paid staff and an elaborate facility cannot afford to do too many direct cremations. If they do, the facility will suffer as will the staff in that raises will disappear and the capital needed for repairs and upgrades will evaporate.
I suspect that in many communities we will need to see a “stratification” of firms so that rather than serving an “ethnic” identity as we see in many regions, different firms will provide different levels of service for different segments of the community. This makes good economic sense (even though it poses some huge marketing challenges) and has happened in some parts of the country already.
This takes a very different mindset for funeral directors. We have tended to talk about “our” people, often meaning “our ethnic group” and we show up with the building and equipment needed to serve those families. In the future, the most profitable firms will decide on the form or level of service they will provide (i.e. direct dispositions vs. full-service, though there will be more variety than that) and then the firm will work to gather in every family in the region that fits their service profile. This level of specialization will allow for firms to develop new levels of quality and efficiency. This is exactly what our industry needs over the next 5 to 10 years.
Think of it this way, Starbucks serves coffee their way and serves a very profitable segment of the market. Dunkin’ Donuts (and other chains in other regions) serves a different clientele and does very well financially. The same differences need to show up among funeral homes or we will waste a great deal of time and lost profitability trying to keep up the traditions of serving whoever chooses to call. Starbucks doesn’t adjust their pricing to meet the needs of everyone who decides to walk through the door. They respectfully and clearly recommend a different coffee shop down the road for those not prepared to pay for a $4.00 cup of coffee. I think in time we will see something very similar happen among funeral homes especially since funerals are far more complicated and financially challenging than coffee.
BT
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