Are Funeral Homes Profitable?

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Running a funeral home used to be seen as a license to make money. People keep dying, and their loved ones always want to send them into the next world in style. In the 21st century, however, the industry and its profits are dwindling. Nevertheless, it's still possible to build a profitable funeral home business by helping people in their time of greatest grief.

TL;DR (Too Long; Didn't Read)

Funeral homes are profitable, but they're struggling to stay that way. The growth of cremation as a cheaper alternative to burial has hit many funeral homes with a loss of revenue. Having a crematorium as part of your funeral home business is one way to stay afloat.

Funeral Home Industry Analysis

The funeral home industry is mature. It's an old, established line of work that isn't rapidly innovating or shaking things up. Along with the products and services offered, revenue depends on the death rate in your community and economic conditions.

As of 2018, there were slightly more than 19,000 funeral homes in the United States. The number has been dropping steadily since 2004. The majority of funeral homes handle 150 deaths or less each year, and the median cost of a funeral is $7,360 or $8,755 with a burial vault.

The industry generates $17 billion in revenue each year. That number has grown steadily but slowly from 2014 to 2019. There's a few billion more from cemeteries and crematoriums attached to the industry.

Where They Make Their Money

The National Funeral Directors Association calculates the median cost of a funeral, viewing and burial by totaling various items:

  • A basic services fee, which runs a little above $2,000 and is non-negotiable

  • Moving the remains to the funeral home

  • Embalming, cosmetology, dressing and grooming

  • The casket — a big-ticket, profitable item with markup running close to 300%

  • Use of the home facilities and staff to arrange a viewing and a funeral ceremony

  • Use of a hearse

  • Use of another vehicle

  • Printed items, such as memorial cards and a register book

The industry is stable and recession-resistant, but it isn't recession-proof. In the 21st century, there's been a growing pressure on the industry. Average funeral home revenue is going down, and many long-established homes are closing their doors.

Income and Cremation

Business magazines and the NFDA cremation and burial report finger cremation as a major blow to the industry's profitability. Funeral industry trends in 2018 and after show cremation steadily surpassing burial. By 2040, three quarters of the dead will be cremated rather than interred.

That's significant because cremation is a lot cheaper than a burial and funeral. The NFDA says the median cremation cost is a little above $6,000, and it's a lot less than that if the grieving survivors don't want the body embalmed or don't want to set up a monument. In many cases, cremations generate a third of the revenue that a burial and funeral would generate.

Cost is a major factor in the cremation boom, but it's not the only factor:

  • The environmental impact is lower.

  • Americans are less religious than they used to be, so they put less emphasis on a religious funeral and its rituals.

  • Ashes can be scattered or made into funerary jewelry and keepsakes to divide among the family. That works better for many families than having one location they have to visit to acknowledge the deceased person.

  • While survivors can have traditional funeral ceremonies with a cremation, many of them find it easier to dispense with most of the rituals in favor of a short, sorrowful gathering.

Death and Profit

As the baby boomers age into their twilight years, industry prognosticators foresaw a surge in business as the generation began dying en masse, boosting average funeral home revenue. It didn't happen.

Take New York City, for example. The death rate dropped by 30% from 1989 to 2014 despite the population growing. Credit goes to better medical treatments for heart disease, cancer and AIDS plus restrictions on smoking reducing cancer deaths. That's good news, but it does reduce the need for a funeral home's services.

On top of that, seniors with longer life expectancy often move away from their old Big Apple neighborhoods. When they do pass on, they'll be buried somewhere else.

Pressured Funeral Homes

Fewer deaths and the cremation boom aren't the only factors making the funeral home industry less stable than it used to be.

  • Rising real estate taxes in urban areas make it more expensive to maintain the business property, particularly if there's a cemetery attached.

  • Rising property values have led to many funeral directors selling the land, shutting their doors and taking the profits. This doesn't seem to create a need in the community because people just switch to using crematoriums.

  • Many older, established cemeteries have little space left. Even if you found an owner who was willing to sell, you might not get much use or profit out of the cemetery.

  • State regulations impose increasingly expensive requirements on funeral homes. That makes it harder to turn a profit.

  • Profits may be down, but the costs of opening a funeral home — including the land, the building and all the necessary licensing — haven't shrunk in proportion.

  • Tastes are changing. Fewer people want a religious funeral. Fewer people feel the need to have the body at the ceremony. Families can hold bodiless funerals in many places besides the funeral home.

  • Many surviving homes are chain businesses with the financial muscle to compete successfully against startups with lower prices and more advertising.

Turning a Profit

Although times are harder for the industry than it used to be, it's still possible to run a profitable funeral home. It will take more effort than the days when a big, expensive funeral was the norm, though.

  • Find the right location. Suburbs have less pressure on the land, lower property taxes and more space for people to park. Some funeral homes have been very successful leaving cities for the suburbs.

  • Think outside the traditional box. In the 21st century, a crematorium will probably benefit your bottom line more than a cemetery, and it takes less land.

  • Offer services that suit the new trends in mourning, such as memorial jewelry.

  • Encourage cremation customers to honor the deceased with a visitation and a funeral. Many grieving families love the idea, but they just don't realize it's an option with cremation. Mention those options in any brochures and advertising you have.

  • Offer fancy rental caskets for wakes and viewings and then a simple interior casket for the burial.

  • Have a video setup so you can play films or show photos of the deceased's life.

  • Create an ash-scattering garden where survivors can mourn their lost ones in a scattering ceremony.

  • Offer to organize an at-home funeral. This is a low-cost option, especially if the deceased or his ashes are to be buried at home.

  • Offer green burials. These are low-environmental-impact burials that use nontoxic, biodegradable caskets or simply a shroud. The body goes back to the soil and benefits the environment.

  • Consider signing up people for funeral services or a burial plot in advance. This can bring in income without waiting for anyone to die.

Study other funeral homes in the area to see what's popular and what services they're not offering. Talk to people about what they'd want from a funeral home. Use what you've learned to refine your plan and offer the services most likely to keep you profitable.

References

About the Author

Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com