Burial Costs – Funeral Economics & Henry Ford
Many of you may have heard of a fellow by the name of Henry Ford. 100+ years ago he had an idea about producing an automobile that was well made, economical to operate, easy to fix, would go anywhere and could be afforded by the average person. He kept relentlessly at it and by the mid 1920s was producing an automobile that the average working person could buy with the equivalent of 2 or 3months wages. He made his money on high volume efficiency.
So, what has this to do with the funeral business? Something called price elasticity as it relates to market demand. Seems people wanted Ford cars. The cheaper they were, the more people could afford one. They might even buy two. And, like anything mechanical, cars do wear out over time. Or, a person might be doing better and wanted a newer, fancier model. By relentlessly driving the price down, Ford encouraged more and more people to buy cars.
Now, look at the poor funeral director. Very few of his customers are going to “trade up” down the road in a few years or decide to buy two of them because the price is so cheap. The market is in-elastic. There’s only so many people, so many potential deceased. for him to work on. In addition, most funeral homes end up maintaining an expensive “establishment” from which to conduct their business. The cost of this building and equipment (have any idea what it costs to put in an OSHA approved embalming room?) has to be spread over the number of services he gets every year.
Put simply, the funeral/burial industry has an exactly fixed, limited market. The individual business has a relatively high fixed overhead. The only way they can survive is to maximize the “yield” from each customer and/or grab business from other funeral homes and/or limit competition. And, of course, the industry uses all these, and more, on behalf of the funeral homes that make it up.
Increasing yield takes many forms, from the high mark-ups to embedding costs. Grabbing business usually takes the form of “pre-need” selling – locking in the deal long before the person dies. In large population centers it’s embarrassing to see funeral homes fighting to get possession of bodies not already spoken for. Limiting competition consists mainly of capturing regulatory bodies and restricting entry to the trade. These efforts are often augmented by hangers-on such as “testing” organizations, “schools” and so forth who generate revenue from it.
Take the example of a casket. In essence it is a metal box, stamped out of sheet metal. How does it differ from a refrigerator, other than the fact it doesn’t require an expensive compressor and tubing? You can go to a Lowe’s, Home Depot, Sears, etc. and purchase a basic refrigerator that will last for years for a price in the hundreds, not in the thousands. The industry lobbies state legislators to prohibit outsiders from selling them. Some states have statutes designating caskets as “funeral merchandise” which places a whole panoply of special restrictions on anyone who might want to sell them.
Another example of how funeral homes cope with the problem of a fixed, limited market is pre-need selling. In essence, the funeral home is trying to grab a future deceased by promising today to perform work (and provide merchandise) at some unknown point in the future at an unknown future cost. The selling cost is covered by a sales load which is allowed by some states, without which, I suspect, there would be much less pre-need selling. Of course, that’s not the way it is pitched to the consumer.
The above barely scratches the surface of the subject and it is not intended as a criticism of the industry. It’s just the way it is. Over capacity, high over head, fixed, limited market lead the industry to try and cope. Just some of the ways are mentioned. So, how much should a funeral cost if the industry operated on the kind of high volume efficiency that Henry Ford did? Possibly $1,295 to $1,495 including casket– roughly a $20 gold piece. Unfortunately if anyone tried to implement such a system, say in St. Louis, dozens of funeral homes would be put out of business and the efficient operator would, in turn, be put out of business by the regulators at the behest and on the complaints of all the funeral homes affected.
Other segments of the death industry, including cemeteries and monument dealers, have the same problem – absolutely fixed, limited market. There are only so many bodies to go around! Knowing this, how do we operate? What is our business “model?” Absolutely rock bottom fixed overhead, absolutely no debt, short turnaround times, high percentage of referral business and other steps. We only need a small volume of sales to survive and can be more choosey in who we deal with. We make no claim to be a Henry Ford.
