The funeral home industry has seen record revenues in recent years and is projected to exceed an annual revenue of $14B in 2017. However, the proliferation of cremation in the marketplace hasn’t gone unnoticed and will continue to present challenges to business and impact the industry’s revenue overall.
As cultural traditions become less strict, cremation is expected to become more common in the coming years. Though cremation has historically been discouraged by most religions, American religiosity has lessened over the years, allowing cremation to become a more acceptable and increasingly popular option. In 2015 alone, 48.5% of deceased persons were cremated, up from 32.3% just ten years earlier.
Cremation is a less expensive alternative to a traditional memorial and burial. It can be performed immediately following the death, removing the logistical need to preserve or transport the body, which is typically a service provided by the funeral home, and ultimately decreases the revenue generated per customer.
As the Baby Boomer generation ages, the death rate will continue to increase and overall demand in the industry is expected to stabilize. The senior population, a primary market of funeral homes, typically requests traditional memorials and burial services, which require more involvement from staff and thus a higher cost per customer. This is an important note for funeral homes that do not offer cremation as a part of their services, as they will be able to continue generating revenue through traditional means.
But the evolution of services, particularly the proliferation of cremation, isn’t the only thing impacting the revenue of funeral homes–the efficiency and cost savings provided by e-commerce shopping is also reducing revenue generated from merchandise sales. Funeral homes and their staff are not only responsible for coordinating memorials, but also providing merchandise to their customers including caskets, burial vaults, urns, monuments, memorial registry gifts, cards and floral arrangements. The caskets are often the most expensive item offered for sale, with potential prices exceeding several thousands of dollars. However, as e-commerce shopping allows consumers to purchase caskets online for lesser costs, funeral homes aren’t generating the consistent product sales they used to. Additionally, as they are federally required to accept merchandise purchased through e-commerce and third-party sources, they are unable to enforce the sales of their owned goods as a part of the customer’s service. As a result, they are unable to control this revenue stream as precisely.
Cremation is projected to impact industry growth and profitability for the foreseeable future and e-commerce shopping will only become more efficient for consumers, but demand for funeral home services will remain consistent with a growing senior population, stabilizing opportunity in the industry and allowing the continued generation of significant revenue. With this information in mind, the following tips can be applied to establish and sustain a successful funeral home business:
Implement cost controls to project and control profitability
The primary expenses for funeral homes are both their labor and purchased merchandise for consumer use, such as caskets. Their employees, including funeral directors and morticians, require specific training and are offered competitive salaries as a result. As these wages account for the largest expense for the industry overall, totaling nearly 25% of spend, it’s important to regulate these costs in the total budget. Though there is no mandated government assistance for this industry, the Funeral Consumers Alliance and other existing industry associations can be of potential help.
Be sure to comply with all government mandates and regulations
Though there are few barriers to entry and there has been little technological advancement in recent years, the funeral industry is under heavy federal regulation and requires specific licensing for its employees as well. The Federal Trade Commission requires funeral homes to offer full visibility and itemized price lists to customers. Additionally, the Federal Truth-in-Lending Act and Regulation Z require finance charges and total amounts financed to be shared with customers when offering them credit.
In addition to financial and customer-facing policies, there are environmental regulations related to both the emissions generated in cremation as well as all hazardous materials present in these establishments. Under the Clean Air Act, emissions created by funeral homes must be regulated to control their impact on the environment.
Establish a niche in your business to reach a targeted demographic of consumers
Providing specialized services, such as those with religious or ethnic elements, will differentiate funeral homes within the industry and help consumers identify the right business for their needs. Additionally, as cremation is not offered by every funeral home, those that have the capabilities for it are at an advantage as the demand will steadily increase.
Sell product through establishments that generate significant traffic to combat the ease of online shopping
The prevalence of e-commerce shopping has become a threat to funeral homes’ revenue in recent years. However, selling products in high-traffic areas can help increase sustained awareness and sales.
Establish and maintain a good reputation in the community to ensure future business
As most funeral homes are small, local establishments servicing a 10-15 mile radius, their success is often dependent on reputation in that community. There exists little competition within the funeral home industry itself. But, it is imperative to ensure that all customers are satisfied with your work and will be likely to refer your funeral home to other families in the community as well.
Utilize marketing strategies to stay in touch with the community and reach new audiences
Funeral homes have adapted their marketing methods in recent years, allowing them to maintain communications with their communities and reach new consumers—all helping to combat the changing marketplace. They have increased their marketing spend and utilize both advertising and direct mailing, too.
In the near-term, cremation will continue to suppress revenue in the funeral homes industry, businesses will need to modify their tactics and services to meet its steady demand. By understanding the influence of e-commerce shopping on product sales as well, funeral homes are encouraged to explore new methods of advertising and product sales. And finally, given its long-standing referral system, funeral homes are urged to establish and maintain specialized services to bolster their reputation in their communities and the industry.
*All research provided by IBISWorld Inc.