P R E N E E D

NOTES

BY QUINN EAGAN

ARE YOUR BUSINESS AND MARGINS

GROWING? IS YOUR PRENEED BACKLOG KEEPING YOU PROFITABLE?

    A funeral director I once knew had a report put together for him studying his totals calls and average margins over a five-year period.  From the various breakouts he could see that his margins were declining. Not a good sign regardless of how you look at it.

    He had his accountant dig more and discovered that an increasing percentage of his call volume was coming from a backlog of preneed.  In other words, he was depleting his preneed contracts quicker than he was writing new ones.  This was not a good sign either.

    The funeral director complained that servicing the preneed sales were bringing down his profit margins. The accountant went on to tell the funeral owner that if he did away with preneed contracts, meaning if he did not service and get paid for them, the business would lose money…a lot of money!  Enough that the fixed overhead of his business would consume him. 

   The accountant argued that preneed did more for the director’s business than he thought. In fact, they generated many of his atneed sales as well. The funeral director then scolded to the accountant, telling him he would have gotten the funerals regardless of the prearrangement.  The accountant remained calm and presented two lines of argument:

    First, he showed the director a graph showing how more and more of his traditional families had begun choosing cremation over the past five years.  This was an astonishing loss of revenue that no one had previously analyzed.  None of these margin reductions were preneed – they were from the pool of families that he considered his core customers.  From this vantage point, his accountant said, this margin loss far exceeded any hit of a “preneed expense” and proved with a spreadsheet that if 100% of his clients were prearranged, he would have been better off financially. The families that had changed their preference from traditional funerals to cremation were otherwise devastating his bottom line. (Perhaps preneeding those families before they made up their minds to choose cremation could have been a huge profit protector for him, the accountant also suggested.)

    Second, the account produced a list showing all the families that had a preneed arrangement that he had serviced the previous year – about 30 percent of his atneed business. After reviewing the list in detail and earmarking those family names on the list he had not previously served (from memory), they put pencil to the extra value that these ”new calls” brought into the firm.  The accountant carefully showed the owner that, in fact, they accounted for almost half of his entire yearly at-need profit, once the accountant applied the direct cost of performing the services of families who were not “his”!

   The funeral owner could not understand or accept this. He’d always thought preneed to be an insignificant part of his business – one that he really did not spend much time in developing. He’d never even consulted with experts about how to really achieve results.  The funeral home owner had never been faced with a changing market. He’d inherited the business and its traditions from his father.  His father and grandfather (who also ran the business) never had to worry about anything except providing good service to their families.

    The owner never really accepted his accountant’s studies and as the next two years passed, his margins faded below the acceptability level.  After asking fellow peers in his funeral home study group, he

decided to embark on a renewed campaign, not only to reinvigorate his preneed actively, but also to find ways to get to those families that were new to his firm, those same new families that could increase his suffering bottom line.  His only other choice was to raise prices or cut expenses.

    The saga dragged on and one because the funeral director relied on some generic marketing efforts (from some of the preneed insurance suppliers) that created only activity. They did not include  any significant move to capture new families and they generated few preneed contracts. 

    Then he decided he needed to invest more money and hired the best ad agencies in town to develop some really great stuff – fine looking, wonderful message, something to be proud of…but the results of getting new families were dismally the same.

    When we finally got an inquiry from him, we had to ask a lot of questions – much like a doctor would ask an ailing patient.  We also needed to know what he wanted to accomplished, how he was approaching the market. But it was very obviously to us from the first few minutes that the advertising methods were not in alignment with his stated goal – to get new families and keep his business above the acceptable profitable level.

   After spending a half day with him and the accountant, we deduced that his problem lay in his efforts to attract existing families – handling the “walk-ins” and doing a family follow-up. He thought that this along with the series of ads and (real lousy) direct mail, would achieve more new calls. How wrong he was.  It was like bringing a swimming suit to Lake Michigan in the dead of winter!

    The point of the story?  We suggest you do two things to measure your future health: get your accountant or an expert to perform a similar analysis so you can see your business trend and develop a more informed idea of your revenue sources and their values.  And spend some time (and maybe energy and money) to get an expert’s opinion on whether your advertising program is effectively targeting and obtaining new families to boost your revenue or failing to meet its objectives.

    For every $1,000 that is spent on effective advertising, the result should be $30,000 of additional preneed sales, based on an average atneed sale of $6,000.  Don’t confuse activity with accomplishment, your business’s future health may depend on it!