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Monthly Archives: September 2014

almost overI have been inundated with messages from funeral home owners about some of the “year end deals” that have been presented in the last week.  Many questioned why we must be subject to the fiscal whims of the suppliers, i.e., most funeral homes operated the fiscal year January-December…so is this really the “end of the year?”

One of my favorites was a particular firm had two open spaces on their casket display.   While their supplier representative was paying him a visit, the rep said that he would call in for a reorder to fill the open spots.  The owner asked the rep what the new product lines are that he would like to try something new and “less pricey” because it seemed to take forever to sell the two that are now gone.  The rep explained there are going to be some new products out, but those won’t be available until after “the show” in October.  The rep again said he would just call in an order for the two empty spaces…the owner told him “not so fast, I told you I want to display something less expensive.”

That’s where the fun began.  The rep explained that he had some “special year end discounts” which would make the exact replacements less costly.  The owner pushed back with the issue that it took a while to sell those two off, and he was interested in something new/less costly (the owner said it was as if he was talking to a tree, no listening for the rep).  The rep finally showed the owner a line of caskets that had high eye appeal, less costly “but would not count towards their current discount, rebate or “numbers” as the rep put it.  The owner selected and purchased two of the “special line” of caskets after doing the math of less net wholesale cost, same margin as the two that were being replaced, and lower retail cost to the consumer that would make the purchase which had a better propensity for turn.

The deflated rep took the order knowing the trend is inevitable…math is dictating the business.  Please keep sending the “it’s that time of year” stories related to “let’s make a casket deal.”  I feel an article coming in the future about “buyer beware” on casket contracts…Cheers y’all! #thefuneralcommander

innovationThis past week famed musician Bono of U2 announced that their new album “Songs of Innocence” would be released free to anyone with iTunes (Bono Explains U2’s Deal).  The idea of reaching new customers with their brand/style of music is a brilliant marketing campaign on many levels.  Of course, Apple is participating and launching products of their own simultaneously which creates buzz for all involved.

Let’s see; reaching a new audience of listeners (not even the same genre’s), collaborating with another company to deliver the message, and a fresh approach to consumers.  Any lessons/ideas here for us in the funeral industry?  I have a few ideas, but I’d love to hear from from you.  Cheers y’all! #thefuneralcommander

casket salesMy post earlier this week Let’s Make a Casket Deal has brought many responses.  If the funeral home operational model is in dire need of change to adapt to the shifting consumer market, shouldn’t the casket companies do the same?  The most resounding in box and emails from funeral directors I have received this week is that their casket salespeople are scarce until a promotion or “big sale” is being perpetuated (especially this time of year). A few nights ago, I had dinner with funeral home owners and directors.  They too had the same observation that casket company reps seem to show up now basically “hawking” (not my words, but from a funeral home owner) caskets or whatever their quota says the immediate need dictates your attention.

There was a time that casket company salespeople actually provided training and useful information other than “let’s make a deal.”  Again, the funeral world is changing, but are casket companies adapting?  Do you really need to look at a lithograph to buy a product, or can you go online and see for yourself? Merchandising?  Does a funeral home owner really need advice to know that the profit of a casket is whatever you decide the retail cost minus the wholesale cost? Does the phrase “buy low, sell high” ring a bell?  One of my favorites casket company quotes “YOUR WHOLESALE AVERAGE.”  All I care about is my net profit per sale!  If you don’t know that you can make the same net profit from a 20 gauge as a high dollar 18 gauge, send me an email and I’ll help you out. There is no direct correlation between your “wholesale average” and your net profit per sale…it’s the casket company’s way of saying “your wholesale average is helping our net profits.”

Just for fun, let’s take a quick economics and history lesson.  The cost of a particular white 18 gauge casket in 2004 was just under $1000 and in 2014 it is around $1950 (who knows what it will be in October).  I’m not really good with math, but that’s quite a stark increase in cost. Back then if the margin was $1.500 on this casket the consumer would pay around $2,500.  So, if the same margin was added to this product today the consumer must pay around $3500.  If today you purchase a white 20 gauge casket (or shop around for a similar product) for $700 and the margin is $1,500, the consumer pays around $2,200.  It’s not what you sell, but what you keep.  I have always wanted to conduct a consumer study by having white caskets, same color interior and different gauge/materials/interior material all lined up with corresponding retail prices.  What would the consumer buy?

Now you would possibly hear from some (most likely a casket company) that “we have conducted that test, and they chose the model with all the bells and whistles because of the perceived value.”  BUT; what if this was an actual at need purchase made with real dollars and has to be added to all the other funeral home, cemetery and cash advance costs?  Think about it.  Which of the before mentioned white caskets are you, the funeral director “better off” selling?  Either one.  IT’s the families financial and personal choice and they are happy and your net profit per sale is the same.  Help me understand where “your wholesale average” makes a lick of difference here?

Times are changing and so is the entire funeral industry operating model; from serving the shifting consumer, the funeral home, to the vendors of products and how they sell to us.  It’s time to take an objective and new look at how to purchase, price and position our goods we provide the families’ we serve.  So that “knock at the door from your new best friend to let’s make a deal” requires more scrutiny. Remember, it’s that time of year.  Cheers y’all! #thefuneralcommander

bad dealIt’s September; kids are back to school, college football is here, we pack away our white shoes, and some casket companies are playing “let’s make a deal.”  Obviously it’s been a tough year for casket sales and once again they are making last minute efforts to “make the year” for their investors (but more important for company bonuses).  It used to be called “pull ahead” where funeral home owners were asked to buy extra caskets at a “great deal” meaning a discount on top of the normal discount and savings from the upcoming price increase.  However, upon a close look and drill down into the numbers, it’s not difficult to decipher which entity is getting the best end of the deal.

Just this past week a fellow funeral home owner reached out to me for my opinion on a casket company’s “let’s make a deal” offer.  Immediately, I found it amusing the casket company was making an offer that was contrary to their original contract and the assumptions made from the wrong date of contract expiration.  Contract?  Who needs a stinking contract? This was the first evidence of desperation and what appeared to be deception attempting to “make the year.”

Here is the overview of what’s “behind door #1.” The casket company wanted the funeral home owner to purchase a pretty good size bulk number of caskets before September 30th. The bulk order would be discounted (in addition to their normal discount/rebate) and the firm would have a short time period to pay for the bulk order.  There were restrictions on what type of caskets that could be included.  AND; based on the current contract (you know the one they got the date wrong), they would “forgive” what looked like a shortfall of achieving a purchase bonus rebate and “give” the firm that particular amount calculated AND just renew the current contract for another x amount of years.

So let’s break this down.  The casket company wants the funeral home owner to buy x number of caskets now and store them until this purchase is depleted.  I have a few problems here.  Isn’t the casket company that came up with “just in time delivery” so funeral homes are not required to “warehouse” caskets? Does this defeat the purpose of that “room” the funeral home paid for over time?  So, is the funeral home owner is supposed to fork out a five figure check over a short period of time (equal payments of course) for caskets that may not be used for months?  Of course, the casket company explains how much savings are realized with such a purchase by “avoiding the impending price increase.”  So the rationale is spend five figures of cash up front to maybe save 3-5% on purchases you are going to make anyway…damn the cash flows!  Oh yeah, you can’t order the casket that you sell the most…they don’t count.

If the casket company is “sucking eggs” from low sales, do they even acknowledge that the funeral home probably has suffered financially over the same time period?  Back to the contract (you know the one the casket company holds near and dear, but willing to “forgive” all when in their odds).  In this particular case, the casket company said that if the funeral home makes the bulk order before September 30, then those caskets will make up all shortfalls for the “wrong date” and a new contract will start October 1.  The “math” says that the funeral home has another 6 months on their contract and with their average monthly casket purchase history; there could be a shortfall of maybe 30 caskets which would keep the funeral home from the “purchase bonus.”

I’m not real good with math, but if the funeral home owner buys their average amount of caskets monthly for the next 6 months and monitors their purchases, the worst case scenario would be that the funeral home would need to buy an additional 5 caskets per month.  Of course, take into account that November-February is typically the “high season” so the additional purchases may not be necessary. The amount of units the casket company offered for this “deal” exceeded the amount of the impending “shortfall.”  This smells like the fish you caught over the Labor Day weekend and just remembered are still in the cooler.

“Behind door #2” is the ability for the funeral home to continue their average casket purchases over the next 6 months, monitor purchasing units for needed additional adjustments, hang onto their cash, order just in time products (only the ones that they really need and use), earn their “purchase bonus” and renegotiate a new contract.

Let’s take a look at what should be “behind door #3” but is highly unlikely to ever get revealed.  An annual contract, not multi-year. Let’s say the casket company provided a 25% discount/rebate over 3 years.  Good deal?  Only if there are no price increases over the life of the contract.  The first year of the contract is great (unless you signed in the wrong time of year, see note below) and let’s suppose that the casket company increases their prices an average of 4% per year.  That means the last year of your 3 year sweet deal you are now getting a 17% discount/rebate in real dollars, not the “Monopoly Money” casket companies base their figures.  By negotiating annually, a funeral home can appropriately avoid the price increase shell game. Renegotiate the next contract in conjunction with price increase time.  AND make every casket purchase count.  It’s not the funeral home’s issue that the casket company “doesn’t make the same margins” on certain caskets. Certain lines, non-gasketed and cremation caskets are…caskets.  If the casket company is unwilling to include their “low margin caskets” to the count of discount/rebate/bonus, then purchase those caskets from another casket company (include this information in the contract).

If your “new best friend” casket sales representative has been (or is getting ready) to play “Let’s Make a Deal” take notice!  It’s that time of the year; price increases from suppliers, adjustment to GPL/product price lists, recovery from the financial strain of the slow summer season, and bulk purchase offers so the casket company can “make their year.”  Make good financial choices based on math, not loyalty.  After all, your competitor may have a better deal from the same company; there is no loyalty from the “Let’s Make a Deal” crowd.  Coming soon to The Funeral Commander blog: the “loyalty” post for us to ponder.  Cheers y’all!  #thefuneralcommander

washed outIt’s the time of year that summer comes to a close…the end of a season associated with happy, warm and carefree days. However, this description of summer is not necessarily reflective in the funeral industry.  Just like the ocean, the death rate has an ebb and flow; historically the death rate is higher in the 1st and 2nd quarter of any given year and the 3rd quarter (summer) is significantly slower.  This historical trend offers the opportunity for timely discussion.

As a funeral home owner/manger, how do you prepare for the ebbs and flows of the death rate for expected “slow times?” Does your firm adjust prices based on recent revenues?  What type of marketing campaign do you launch (if the phone isn’t ringing, then go out singing is one of our firm’s methods)?  Or  are you the proponent of the ever popular “we have experienced this before” and do nothing?  The problem of decreased death rate in today’s atmosphere is coupled with other issues; competition (locally and online), shopping consumers, increase of cremation, decrease of traditional burials, and of course when a call is lost, so is the revenue along with that family most likely not returning either.

Lest we forget: it’s price increase time!  Yes, if not yet, your happy supplier will visit soon telling you how much you are loved and appreciated…and that love will cost you more this upcoming year!  Now, don’t forget that suppliers have to make profit and if you review the wall street owned ones, they do handsomely.  Nothing wrong with profit, frankly I’m in favor.  Back to my point, this time of year.  The funeral homes that I am owner/partner, we operate our fiscal year January-December.  However, the major suppliers find it necessary to impose their fiscal calendar upon us to suit their financial needs…this time of year.

What does this mean to you and your firm?  Well, first it’s time for you to make adjustments to your GPL and product price lists or absorb the product price increases starting October 1.  Remember the “slow” summer season just ending?  Now you have to account for those losses and adjust for upcoming increased product costs.  Frankly, if your firm has been adjusting prices along the way, this is not a big deal.  However, the majority of funeral homes in the US only make price changes this time of year, when dictated by suppliers, if any adjustments are made at all.  I know it’s hard to believe, but I see GPL’s and price lists that are actually dated “2010.”  Second, are the prices you are paying for products (and getting ready to pay more) a value to your firm and families?  At some point, there is a price for “loyalty,” just ask consumers.  I’ll address this question in another post soon.

So for discussion sake, how does your funeral home address “slow periods?”  Anyone out there heard the latest price increase numbers?  What are your methods to formulate price adjustments? How often does your firm adjust prices and what time of the year if only annually? Happy Labor Day (I’m working, but doing so with a cigar as part of the celebration).  Cheers y’all! #thefuneralcommander

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