The Elephant in the Room: Let’s talk about declining revenue and margins instead of debating preneed

I have been reflecting on the ongoing debate about preneed – whether it is a net plus or minus for funeral homes – and have concluded that we are all talking about the wrong thing. It is a distraction from the real issue which is: the accelerating erosion of revenue and margins in funeral service. I fear the funeral profession is fast approaching a crisis stage, and the conversation about preneed is akin to rearranging the deck chairs on the Titanic. Let me quantify reality:

• Funeral Service Insider recently reported that, when the final numbers are tallied, cremation is expected to be the choice of almost 32% of deaths in 2005. Cremations typically sell for about $3,500 less than burials. 32% represents some 768,000 cremations. So, the overall lost ANNUAL revenue to the profession equates to about $2.7 billion. That's billion with a "b."
• Overall deaths are reported to be down about 2% and the average sale reported by Federated Funeral Directors of America is $5,675. That means the profession was down about 50,000 deaths or an additional $284 million in lost revenue. (For combined total lost ANNUAL revenue of almost $3 billion!)
• The profession is beginning a slow transition to meaningful funerals, tributes & reception centers – all things that will be necessary to assure viability and sustainability for the future. However, all these things require additional capital and operating expense. Although they are more effective they are less efficient - but no one is really focusing on how to recover this additional cost in an environment of declining revenue.
• The Casket Manufacturers and Funeral Suppliers Association reports that the market-share penetration for caskets has declined 10% in the past ten years. (Sort of parallels the growth in cremation – coincidence?) Despite expensive and sophisticated merchandising systems, precious metal has yielded its high-end position to stainless steel. What does this foreshadow for the future of caskets?
• As practitioners strive to increase retail prices, funerals just get smaller, so the revenue impact is limited. Visitations are being supplanted by receptions. Two-night visitations have almost disappeared.
• Just this last month I received a flyer through a friend circulated by a Hilton hotel sales and catering department in Florida advertising memorial services and special bereavement rates. In the same week, Hospice Cremation and Funeral Services (a non-profit) was launched..

I could go on, but I don't want to discourage or frighten. My point is this: The profession has a lot more to talk about than the merits or demerits of preneed.

I repeat what I said in The Great Preneed Debate at NFDA's leadership conference seven years ago: "Funeral Service has lost too much ground already and the debate about preneed is both pointless and distracting." And here is why: The consequence of this spurious debate is that funeral service does nothing. And there is a cost to doing nothing – a very expensive cost. According to quantifiable data the profession is bleeding. The problem is not that any one is doing anything wrong. They are doing nothing --- and that is what is wrong!

Preneed has simply become a scapegoat in a profession that is bewildered about how to respond to the real issue long-term. While some practitioners may not like preneed, they know it will continue to be a vital part of the service they render to their communities and, properly managed, will have a significant competitive benefit.

I created a CD for a study group I attend (Death Care Management Council) regarding preneed that allows funeral homes to individually quantify the cost of doing nothing compared with the cost of doing something. It's a real eye-opener. The annual cost of doing nothing for a 100-call funeral home after ten years is well over $100,000, including the cost of any preneed shortfalls.

So let's get rid of the distractions and talk about the real issues of declining funeral sales and profit margins, and of funeral homes' future livelihood. To help underscore the point, I've included the following adaptation of Terry Kettering's poem, "Elephant in the Room," which dramatizes what I believe many leading funeral directors are feeling:

There's an Elephant in the room.
It is large and squatting, so it is hard to get around it.
Yet we squeeze by with "Hi, how ya doin'" and "I'm fine..."

We blame our associations.
We blame our suppliers.
We blame preneed.
We blame the media.
We blame the consolidators.
We blame our staff.

We talk about Receptions & Meaningful Funerals.
We talk about our competitor.
We talk about politics.

We are thinking about the Elephant as we talk.
We all know it is there.
It is constantly on our minds.
It has hurt us all.
We talk about everything but...
The Elephant.

Oh, please, let's talk about the Elephant in the room.
Our livelihood,
Everyone's livelihood,
Is at stake!
We need to talk about the Elephant,
We must talk about the Elephant...

Before it is too late.

Can I say "I'm worried about my future" and not have you look away:
For if I cannot,
Then you are leaving me alone...
In a room...

With an Elephant!

Alan Creedy is the President of Trust 100, a third-party marketing firm from Cary, N.C., that has helped hundreds of funeral homes boost preneed sales. You can reach Alan at adcreedy@trust100.com or 800-792-0402.