Watch those preneed come-ons

We all do it. We all use rules of thumb and estimations to get by in this world. We couldn't get anything done if we had to calculate the length of every step in a marathon down to the quarter inch.

But be careful, sometimes estimations can lose you a lot of money.

Take for instance the proposal I received a few days back for the rebuilding of our active preneed program. The proposal used some recent insurance contracts to establish an average age of the policies we sell, which in our case was 75 years old which paid a particular rate of commission. The proposal then went on to say that if we lowered that average to 74 years, our commission rate would jump by almost 4%, an annual commission increase of $35,000 based upon the other estimates we had used.

Except, I knew averages didn't work that way and today I set out to model the numbers more accurately. Bottom line? It took moving the average preneed age by five years to get even half of the proposed increase and another three years to get close to the original 4% increase proposed. And hey, getting the average age of preneed contracts to drop by six to nine years is basically impossible, so the numbers were pure fiction.

In this case I don't think these numbers were presented maliciously. I think the salesperson involved understands no more about averages than the rest of us. In the end, it didn't really matter to the presenter of the information however. As long as the program got going they were happy. But what about my company? If I acted on the given information, and assumed my preneed program would cost so many thousands of dollars to run, I could be in for a rude surprise when I discover the program costing literally tens of thousands of dollars MORE!

Now I know a few of you out there are much better than I with crunching numbers, but for the rest of you who tend to trust your salespeople a bit too much and who tend to manage with rules of thumb and seat of the pants guess work, you might want to get your accountant to review some of these proposals before you sign off. Margins are still tight in this business and that means mistakes can turn very costly very quickly.

Remember, you're the one who wants to pass a sound business on to the next generation and you're the one who will have to face the music with your family and your community if things fall apart. Take the time to become fully informed. It's worth the time and energy.

[Note: I have a very basic Excel spreadsheet which will let you compare the financial impact of changes in contract average, average age, etc. It's nothing fancy but I would be glad to share a copy if make a request by email.]

Comments

[Jodi Clock]

I'm getting caught up on my blog readings and just read "Watch those preneed come ons!" Each time I read comments like this I want to get on a soapbox! There are 2 sides to absolutely everything and on this topic a very happy medium. Pre-need is and can be a win-win-win for everyone involved.

1st - let's just talk about the secured future funerals. 2nd- let's talk about in states where the funeral professional either accepts an insurance commission or adds a trust fee to the contract. That is up front money. If the funeral home owner elects to use that income now to pay a pre-need employee, place in the checking account today or even pocket personally - this seems to always be forgotten at the time of claim.
There also is always the option of investing those monies for "perceived" shortfalls. 3rd- yes, the contract grows and sadly some states dictate how it must grow. The good news is, in insurance - even if the company goes under - there is still legally money that can be claimed via the way the goverment requires all insurance companies to reserve. If it's in a trust - well, does anyone remember the Mechem Trust days??? How about Clayton Smart's trust??

So-let's look at the bright side of things. If as a business owner you don't you realize that you will have future paid for funerals and that you have the opportunity at each funeral to "wow" the guest/visitor who may not have come to your faciltiy - in my opinion only...that's the real pre-need opportunity!

So-next time the vender comes by with a plan - I challenge you to look at the bigger picture. Pre-funded funerals translate into upfront money, future market share, a referral opportunity,a paid for funeral and a chance to show off what you do best to visitors for future business!