I recently read about a research project conducted by McKinsey & Company, a world renowned consulting company.  They found that among a select group of 1200 global companies, a 1% increase in average prices would translate into an 11% increase in profits.    Assuming demand remains constant, an additional study revealed that the same 1% increase in price would increase profits from 16% (Home Depot) to 155% (Sears).    So, what would a 1% increase yield in a typical funeral home?

Let’s assume a 100 call funeral home with average sales of $6,500 per call

Before                   After

Calls                                         100                      100

Average Sale                        $6,500                $6,565

Total Revenue                   $650,000           $656,500

Cost of Goods                   ($130,000)        ($130,000)

Gross Margin                    $520,000            $526,500

Overhead                           $487,500            $487,500

Profit                                    $32,500               $39,000

Increase in profit ($39,000 – $32,500) / $32,500 = 20%

Interesting!  Just goes to show you how powerful that low variable margin really is.