Looking To Reduce Your Overhead Costs? Here Are 8 Tips To Get You Started
As your funeral home grows, the more business brought in should result in increasing margins between your revenue and overhead costs. Often, however, overhead costs begin to creep up too and it’s harder to decipher where money can be saved. Here, we give you places to start.
Tip #1: Re-Evaluate Vendor Agreements
Review agreements with major vendors (casket, outer burial containers, urns, etc.). Although your funeral home may currently be in a contract, very often vendors will renegotiate mid-term and reduce costs. Sometimes, competing vendors will offer to pay any fees/costs to exist a competitor’s agreement to use their company.
Tip #2: Tightly Manage Over Time and Part-Time Staff
OT is a necessary part of funeral service, that’s why it’s important to proactively manage it. Staff should be required to obtain pre-approval for OT to help reduce or eliminate it. For example, rather than asking staff to work a whole day, it may be completed in shifts. into the evening to reduce or eliminate OT.
It’s equally important to be engaged in the management of PT staff. Often this staff is called Ambassadors and are a key part of the team assisting on services, errands, removals, etc. It is not recommended to have PT staff on a regular schedule as call volume increases and decreases frequently. You may even consider putting PT staff on an as-needed basis based–when there are more families to serve, their hours will naturally increase.
Be Open to Lay Offs
Bottom line: Personnel is the largest fixed cost expense at any funeral home. If call volume has declined, assess the ratio of full-time staff to call volume (full time equivalent) and if needed, make the hard decision to reduce a full time position to PT or eliminate it completely.
Tip #3: Challenge Insurance Premiums
Healthcare costs have exploded over the past 10 years and although funeral homeowners are often generous and want to deter these costs away from their employees, the funeral home should consider having the employee share in the costs. If you’re paying 100% or a high percentage of medical/dental/life, for example, consider adjusting this up by 5% per year (having employees share in the costs).
You should also make it common practice to review all insurance policies on an annual basis. You may even want to bid to other companies to determine if these costs can be reduced.
Tip #4: Sell, Buy (or Lease) Vehicles Often
Studies will show that sedans and vans have exponentially increased maintenance costs once they are 3-4 years old with a professional fleet (hearses, limos) around 5-7 years depending on mileage. There is no such thing as a “free vehicle” (even one that is paid off) as the maintenance expenses will continue to escalate annually.
To circumvent those costs, sell/buy or lease vehicles on a regular basis to maintain a newer fleet with the lowest maintenance costs possible. You may even want to consider a fuel program to manage the purchase of fuel.
Tip #4: Assure General Agency Revenue is Market Appropriate
GA revenue from 3rd party insurance companies can be significant. That’s why it’s important to review your arrangement annually and take it to market to assure it’s comparable and appropriate.
Additionally, require that nearly all preneed agreements are funded through insurance to achieve the GA revenue and not trust. There should only be rare circumstances when a trust agreement is used (terminally ill, over 90 years old, etc.).
Tip #5: Create an Inventory Approval Process
Often, staff will order more than needed to avoid the hassle of ordering frequently but it is recommended to only order enough supplies for 30-45 days worth of inventory–the just in time (JIT) approach.
Consider implementing an ordering process–a form that is submitted to ownership to approve the ordering of supplies–for miscellaneous merchandise (books, folders, prayer cards, crucifixes, etc.).
Tip #6: Track Promotional Expense ROI
While marketing is important for any funeral home, it can also monopolize a lot of funds without producing results. Much like closely managing employee OT and ensuring PT hours are well used, marketing expenses should be monitored closely.
Monthly, review your active paid campaigns. Is it producing results? Are they higher than what you’re paying for the ads? If not, rather than pull it, consider pivoting–change your approach first. Still not working? It may be time to focus your efforts in other ways such as charitable donations or community involvement initiatives. Bottom line: sales/leads should increase if the marketing is working.
Tip #7: Train Your Staff on Estimates
Often staff will under-value the estimated cost of an obituary or airfare, etc. and the business will pay the amount due in excess of what has been collected from the family on the statement of goods and services agreement (contract). That’s why it’s important to manage the cash advance income against the expense on a monthly and YTD basis.
Additionally, train your employees to estimate high as it is much easier to refund a family $50-$125 as opposed to collecting when the estimate is under the actual costs. You can even provide your team with a range of estimates expected for commonly selected items.
If your funeral home doesn’t offer flowers and catering. Consider meeting with the vendors to establish agreements, add a modest mark-up (anywhere from 15-25%) and begin to sell for a profit (as long as permitted by specific state law). This is a common practice and way to not necessarily reduce costs, but it will drive/increase profits.
Tip #8: Have Industry Experts Take a Look
You likely have a personal connection to your funeral home. This will make it extra challenging to take a step back and look at things abstractly. Do you need to eliminate an employee? Is it smarter to cut ties with a vendor you’ve been doing business with for years? That’s why it helps to bring in funeral industry experts, like Johnson Consulting Group.
We have decades of experience working in the funeral profession. Our team of industry specific accountants and marketers have the ability to look at your business holistically and make recommendations based on your market and our expertise in this field. Not only does this alleviate unneeded pressure on you, but it ensures that the decisions made are for the betterment of the business.
Why go it alone when you don’t have to?
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