Is Owning a Funeral Home Profitable?

Owning a funeral service is not for the faint of heart. Chances are, if you are considering a career in the death industry, you deeply care about helping individuals through the mourning process. It can feel like a selfless act, but it is also a full-time job and you need to put money in your pocket.

Is owning a funeral home profitable? Yes, so long as it is done correctly. In this article, the team at 4BSF will help you learn what you need to do to make your funeral home profitable, as well as what the current marketing analysis looks like.

Is Owning a Funeral Home Profitable?

Part of starting your funeral home business is asking an important question: is owning a funeral home profitable?

The short answer is yes, the death industry has prided itself on providing recession-proof services, because after all, death is inevitable, and someone must take in the bodies.

For many funeral homes, profits are steadily decreasing, however, as they are unable to adjust to the changing market. The traditional burial business is slowly receding, making way for more innovative and eco-conscious options for a funeral by clientele demand.

A large part of making a funeral home profitable is in the reliability of services and the friendliness of the staff. The clientele comes to a funeral home seeking closure of an individual’s death who meant a lot to them personally. This might be a dear friend, a favored aunt, or a loved spouse.

This is one of the main mistakes funeral directors make when starting their business. Funeral homes that are not able to connect with their clientele and provide personal, caring services are less likely to earn a profit than higher-priced funeral homes that deeply connect with each client.

The secret to owning a profitable funeral home is in a stable business plan, good business operation habits, and making connections with your clientele.

By planning around these key factors, the average funeral home can expect to make an overall net profit of 6 to 9 percent depending on the location and size of the funeral home. This places funeral homes well in-line with other common industries.

Additional ways to increase the profits of a funeral home are to properly estimate taxes on operating costs and services and seek professional accounting services.

Balancing the Cost of Starting a Funeral Home

When first starting a funeral home, it is important to balance the cost of owning the funeral home with the projected profits for that year. (1) This might mean picking and choosing things that make the business easier, rather than purchasing a full suite of automated tools.

“[…] we decided not to purchase some things that we wanted, but didn’t necessarily need.  We opted not to purchase a software program designed specifically for funeral service, scaled back the number of dressing tables, the upgraded body lift, and we hauled flowers one at a time rather than investing in flower trays.  But as the volume of our business grew, it made sense to invest the money in products that would make the day-to-day operation of our business more efficient and easier for us.”

—  Kristan McNames

The average business does not see profit before its third year of operation. This is the primary reason why many people opt to purchase a pre-existing funeral home that is on the market, rather than start their own from scratch.

The price might be steep on a pre-existing business, but one all the costs of a startup are realized, it is often less expensive than starting from scratch with brand new equipment, especially once marketing costs are considered.

These pre-existing funeral homes are often sold when a funeral director gets out of the business or sells off properties that they are no longer able to manage as effectively. In many cases, equipment and assets are handed over as a part of the funeral home, and the business can expect profits sooner than a start-up.

Overall, It Pays to Help People Pass On

Funeral home directors are the first to argue about their passion for the niche. While the profit margins for a funeral provide a nice lifestyle and secure financial future, many funeral directors are more passionate about the cause than the result.

Though the emotional toll can be difficult for individuals in the death care space, helping grief-stricken families deal with the loss of their loved ones is a calling for many who end up in their roles.

Providing closure for families and helping them work through a difficult time can provide a sense of self-worth and passion that money can’t buy. Any mortician or funeral director is likely to tell you the same.

The intangible benefits of owning a funeral home and helping family members pass on often outweigh any negatives, causing business owners to strive for the highest quality service wherever possible. The profit happens to be the icing on the cake, rather than the draw to the business.

Funeral Home Industry Analysis

More than 56-million people die around the world each year, providing plenty of reasons for funeral homes to stay open, so why have profits been declining since 2014?

Unfortunately, the way of the classic funeral home is slowly receding as clientele demand for innovation overcomes tradition.

Whether the reason is eco-consciousness, financial responsibility or a desire for something more personal, funeral homes are being pushed into a new era. Though the funeral space as a whole is slow to change, this leaves plenty of room for new innovative ideas and unique offerings that the funeral service has not seen before.

Funeral homes that wish to sustain their business throughout this change must also adapt to the changing needs of their clientele. This need was hastened by the pandemic, where many families were not only unable to see their family members at the end of life but also unable to gain closure at funeral events due to restricted gatherings.

This left many with the realization that the cost and monotony of a traditional burial is not necessary. Many individuals began to wonder if funeral homes were necessary at all. While the services of a mortician were necessary, the overpriced caskets and vanity services went without notice for many clients.

With that and an emerging desire for environmentally conscious burial options for those who want to minimize their impact on the earth, more funeral homes are seeing the need to offer innovative new services, changing the traditional ways of the death care industry.

With these changes, the funeral industry is expected to regain baseline funeral profits before the decline, as well as fully recover from the pandemic by 2030.

How Funeral Home Industry Generates Income

Funeral homes generate income by providing services to bereaved families and friends of the recently deceased. These services vary depending on the funeral home and location, as some funeral homes prefer not to offer certain services, and others are legally unable to provide new services. (2) The standard model that has been held for years relies heavily on traditional burial services.

This includes the purchase of a casket, embalming services, viewing services, and finally, burial services. While some clients opt to go straight to the burial or prefer cremation over the rest of it, this has remained funeral homes’ primary source of profit.

“Rules regarding who may transport remains are set on a state level and vary widely, so determining how many require special certification for drivers of remains is difficult.”

—  Sarah Maslin Nir

New funeral homes that are focused on the current, best innovative methods of burial that their clientele wants, such as burial at sea, natural decomposition, or carbon-less cremation are most likely to see a profit on their cremation and natural decomposition services.

Other ways funeral homes generate income is by advertising to the community at large, staying in touch with previous clientele to remain at the forefront of their minds, and providing post-funeral grief counseling. Grief counseling may be handled by an in-house therapist, or as a referral to an outside business.

What is the Profit Margin in the Average Funeral?

The average profitability on a traditional funeral, with the full suite of services attached like a ceremony, viewing, and burial, can range anywhere from 7 to 10 percent.

On a service where the funeral home can bill anywhere from $9,000 to $25,000 depending on the services and location, this is not a profit margin to scoff at. Unfortunately, funeral homes are struggling to maintain traditional burials. (3) Though the trend had already begun, the pandemic has quickened the rate at which people opt out of traditional burials for less expensive or eco-conscious options.

“Our ability to get in front of the consumer is limited,” says Ryan. Death is not a one-size-fits-all business. A simple cremation with a plain-Jane urn and no reception costs around $3,000. But an elaborate funeral with a big crowd, a mahogany casket, lavish flowers, and an ornate tombstone could run $20,000 or more.”

—  Tom Ryan

The funeral industry is a slow, unchanging one that indulges in tradition. For those who are unwilling to adapt to these new ways, profit losses are being seen at higher rates, with more people opting for the traditional or carbon-less cremation services.

These services cost a fraction of what a traditional burial does, making it a more practical choice for those who are financially strained or concerned about their impact on the planet. While cremation services sit around the same percentage of net profit for the funeral home, the dollar amount is much lower.

The Average Salary of a Funeral Director

The funeral home director is responsible for all operations of the funeral home, providing minor grief counseling where necessary, becoming the salesperson, and for small or new funeral homes, performing many of the duties required by other team members.

A funeral director wears a lot of hats, ensuring the proper operation of their business from the start, only hiring employees to take over certain roles when the funeral home is profitable.

While this is easier on the business’ bank account, the daily operation and management of so many roles can easily tire a funeral director out in the beginning.

Of course, this is only the case for funeral directors who also control the business. At that stage, the owner can take draws from the company’s profits on top of paying themselves a salary, depending on the way the business is filed and set up.

For funeral directors who own the business, the average median salary is $92,000 annually, making it a lucrative choice for those who run their business well, keeping in mind that many earn well above that amount.

The average salary of a funeral home director who does not control the business can range anywhere from $54,000 each year to upwards of $150,000 annually depending on the level of experience and skill the funeral director displays, as well as the location of the funeral home.

Funeral home directors who have completed all of their educational requirements and apprenticeships, and who can display a decent level of skill in their profession can easily negotiate for a salary ranging from $60,000 to $70,000 per year.

The location of the funeral home will always play a significant role in the median salary, as areas with a higher cost of living must provide competitive rates, versus areas with a lower cost of living where the wage will be considered livable.

Do Morticians Make Good Money?

A mortician isn’t a career many people think of as being lucrative, therefore those who opt to become a mortician aren’t likely to be doing it for the salary. Still, the profession earns a convincing rate consistent with skilled labor, ranging anywhere from $24/hr to $35/hr.

Morticians in the top percentile can make $90,000 and up annually. On average, however, performing work as a mortician will earn a median income between $57,000 and $72,000 depending on the place you are operating out of.

Of course, this does not take into account any additional benefits, profits from the funeral home, or income considerations for owning part or all of a service firm. Morticians are considered a much more stable job than many others in the death care industry, as these services are essential in many burial types.

To become a mortician, you must also complete an apprenticeship and have a certificate or degree in mortuary sciences. The exact requirements vary based on the state of operation, and morticians must hold a valid license to perform their services.

The cost of a mortician might leave you to wonder, is running a funeral home profitable with these expenses?

For small funeral homes, the funeral director often performs the job of the mortician on top of their standard duties, preparing the bodies, working with the families, and managing the services provided by the funeral home. Medium to large-sized funeral homes are more likely to hire a mortician as a part of their team.

Estimated Profit Margin for a Funeral Home

A funeral home’s profit can greatly vary based on the location, services provided, and operating costs associated with the funeral director’s business habits. This makes it difficult to pin down an exact number.

On average, funeral homes can expect to receive a gross profit margin between 60 and 65 percent on individual services, with much of the expense going to operating costs and paying vendors, especially if typical in-house services such as cremation are handled by an outside vendor.

This estimated profit margin might not be true for all funeral homes, as some make well over the average high, while others might operate below average. Independent operators commonly range anywhere from 10 to 30 percent profit, while more established brands and businesses might gross 70% and higher.

Much of the difference in profit margin relies on location. For example, New York funeral homes can have a 44% higher profit margin than more rural states. The rate at which funeral homes see a profit after opening is also increased in areas where the population is higher.

The profit margin can also depend on whether a wide range of services are offered, as green burials typically cost the funeral home 50% less than traditional burials, allowing the funeral home to provide savings to the family and pocket more profit at the same time.

On average, any funeral home can expect a mid-range gross profit margin of anywhere between 30 and 60 percent for each service, and an overall business profit margin between 6 and 9 percent.

References:

  1. FuneralOne
     https://blog.funeralone.com/grow-your-business/mistakes-funeral-home/
  2. The New York Times
    https://www.nytimes.com/2016/08/10/nyregion/transporting-the-dead-sometimes-with-no-permit-required.html
  3. Forbes
     https://www.forbes.com/sites/christopherhelman/2020/04/21/how-the-pandemic-is-killing-the-death-business/?sh=3cd7fa286c64