Author: Alan Creedy

I do my best to keep these posts short.  I know your time is important.  But, on your behalf, I am a little shook up.   One of the benefits of age is wisdom.  I have seen so many things come and go that i don’t shake up easily.  Yesterday, I was introduced to one more $#%@ Bottom Feeder.  But this one is doing some things that need to be noticed and preempted by conventional funeral homes.  Sorry for the alarmism, and sorry for the length of this post but I gotta tell the story.

I was one of the founding partners of Trust 100.  Trust 100 started out as an advertising co-op where we “co-oped” the cost of TV advertising in markets like Detroit, Cleveland, Toledo, Toronto and New York City.  Very little “moves the market share needle” in funeral service but that advertising did.  In recent years I have had several old Trust 100 affiliates approach me to share how successful it really was.  Several years ago former NFDA President, Jack Hogan, wheeled up to me at a convention to tell me, “That Trust 100 advertising increased my volume 40%!”

So, what happened?  You should be asking: why Trust 100 isn’t doing that anymore?

As with any success credit can be given to numerous factors, not the least of which is acknowledging the quality of the funeral homes we had as affiliates.  That said, however, and, in my mind, it is a big however, I believe a lot of the success for actually moving market share lies with the original series of ads we used.  They were “in-your-face” and humorous. Virtually all our affiliates reported that they “made the phone ring.”  Unfortunately, the “in-your-face” and humorous approach was directly contrary to the persona most of our affiliates preferred to see themselves in.   Despite the acknowledged success we were under constant and relatively universal pressure to change the ads to something more “fitting.”  In other words Persona (as it so often does in funeral service) won out over effectiveness.  After several years of literally fighting with our own affiliates we bowed to the pressure and replaced the ads with something more in keeping with the persona our affiliates preferred.  Instantly, the phones stopped ringing. and eventually that strategy fizzled out and we transformed ourselves into a preneed marketer.

This is why I reprinted Patrick Lencioni’s remarks in a recent post “Are you too proud to succeed?”

Here is why I tell you this story: I know from experience what to do to move that market share needle.  At the same time I wore out on “pushing strings uphill” and decided I would stop trying to get Funeral Directors to do what they will not do.  “In-your-face” humor worked extremely well for Trust 100 affiliates in an incredibly affordable format.  It made Forest Lawn in Los Angeles a nationally known brand.  I even witnessed a weird combination of sex and humor successfully used to sell hearing aids for Hearex.  I also used humor to increase our call-in volume at my flower shop by 400%!

But now some of you will be threatened by what I see as enormously effective advertising and you need to know.  Yesterday “Connecting Directors” shared a link to a commercial on youtube for a nonconventional funeral home in Canada:  Basic Funerals.  Click to view the ad inside Connecting Director’s website.  you will need to scroll down to view.  Then come back to learn what I would do to compete with it.

This ad will work, it will be effective and it will move the Market Share Needle.  Trust me.

So, here is what I woud do.  I believe the ad agencies specializing in funeral service need to help preempt this by developing “In-your-face” humorous advertising and funeral homes need to own this category of advertising in their local market.  It will easily pay for itself through increased business and it will enable you to respond to anyone who comes into the market using this genre of advertising.  Nothing is as effective in undermining humorous ads as humorous ads but you need to own that category first otherwise it will backfire.

Based on my experience here is what will happen if you do this:  Your mother will be horrified.  Your staff will be embarrassed.  You will get a few complaints.  Your friends will tease you and…your market share will grow.  It will be painful and maybe you are too proud to succeed but it is much more painful to lose market share than it is to gain it…and more embarrassing as well.

The article linked below appeared in the August 2010 issue of “Plaintiff Magazine”and was brought to my attention by my friend Ernie Heffner. It is a MUST read for all DeathCare Practitioners.

My Recommendation:  print it out and require all your funeral staff to read it.

Just some highlights from this attorney author to his colleagues:

• “Representing family members in an action against a funeral services provider may be one of the most rewarding cases of your career… [they] can be immensely satisfying.”
• “These cases involve some surprising advantages that set them apart from a typical plaintiff’s case.”
• “Cases can involve: losing remains, damaging remains in a motor vehicle accident, improper refrigeration, improper embalming, cremating the wrong remains, mixing cremains of multiple persons, improperly throwing away fetal remains as medical waste, conducting unlawful autopsies…to name a few.”
• “The implied covenants of all funeral services contracts makes proving breach much easier and emotional distress damages recoverable.”
• “it is well recognized that the real objects of the agreement between the family and the mortuary are consolation, consideration, dignity and peace of mind.”

Race To The Bottom is more than just a phrase, it is a political theory and Funeral Service seems to have embraced it with vigor.  Before I get into the theory it is good to be reminded that “whenever everyone is doing it, a blue ocean appears where no one is.”  “Blue Oceans”, as opposed to “Red Oceans”, are those segments or strategies where there are fewer or no competitors.

Personally, I would rather have a smaller financially strong business that stands for values that appeal to a market with the desire and ability to pay than have a financially stressed larger business trying to be all things to all people.

Basically, racing to the bottom involves ignoring the common good for what appears to be the individual benefit.   Discount funerals and cremation, of course, is where this happens most often.  It is not in the interest of the common good to undercut prices but it is often seen as an individual benefit to increase market share.  “Oh well, we may be losing money.  But we’ll make it up in volume!?!”  The Blue Ocean here is to step back and observe the collective behavior of our profession:

Did you ever notice how funeral directors will move heaven and earth, spend precious limited resources and fixate on attracting the lowest economic element of the market?  At the same time virtually ignoring the more lucrative market.  Yes, the low end is growing and relatively easy picking.  The price proposition is easy for consumers to understand and practitioners to execute.  But would the low end be growing as fast if we didn’t ignore the top end?  In spite of the discouraging trends, the majority of consumers are still buying funerals…at least for now.  What would happen if one were to reallocate low end resources and focus on attracting more high end?

In effect, the race to the bottom is an attempt to serve everyone.  Everyone knows you can’t be all things to all people.  But our behavior indicates we don’t really believe it.  My friend Steve McKee (see featured video at upper right) says differently.  He observes that when we narrow our focus we broaden our market.  In other words we attract not only our target market but the markets around them.

The Ritz Carlton strives to turn the top 5% of the travel market into 80% repeat customers.  In the process they have set the standard to which others aspire.  They get their target and probably the next two tiers.  Their price point is lucrative, the ability to target their structure and audience enables them to be more effective as well as more efficient.  And, I suggest their decision to stop chasing nickels and dimes gives them more satisfaction.

But here is the real power of their strategy: by choosing to narrow their focus they have made a conscious and deliberate decision to ignore the 95% outside their target…no Ritz Carlton Lite or Ritz Carlton Express.  That takes enormous courage and discipline.

Funeral Service’ penchant for “stepping over dollars to pick up nickels” has never made sense to me.  I hear more and more about dysfunctional families and how they no longer care as much about “mom” or “dad”.  In response we spend time, resources and emotional energy on that segment of the market that truly doesn’t care about themselves, their family or their friends: the bottom.  I guess we hope to somehow convert them…convince them of the “error of their ways.”   Taken to the extreme we invest well over six figures chasing after the pennies of pet services.

For me the Blue Ocean is with those people who still like their families, have communities of friends, value and esteem life, have a faith.  These seem to be the folks who understand and appreciate how funerals contribute to society in general and them individually.  Operating a legitimate funeral business is expensive.  Why squander that investment on cynical people who don’t care about their family, their friends or themselves?

If I were you I would seek to understand this functional (as opposed to dysfunctional) market intimately.  I would market to them specifically.  Not by building monumental buildings and purchasing elaborate livery but by appealing to their value systems and learning better how they wish to express themselves.

I have said before that I believe we are beginning to overserve our market.  Our reaction to the changes we have experienced has been to work harder, do more and increase our overhead.  I think it might be simpler than that.   Unfortunately, it is here that conventional market research (in particular that which has been done by those with dogs in the hunt) fails us.   Without credible information about the true key emotional drivers we default to that which we think we know but really don’t.

The Funeral Service Foundation is considering that first unconventional approach to consumer research.  The ZMET project is designed to uncover the specific emotional drivers and translate them into the words and visuals that will have impact.  Click here to learn more about ZMET.

In the meantime, take a look at your marketing strategy.  Are you chasing after pennies and nickels or after real dollars.  According to Steve McKee if you narrow your focus you broaden your market.

In this article in the Wall Street Journal we learn that the IRS is getting serious about the misuse of Independent Contractor relationships to avoid classifying certain workers as employees subject to all the rules under the Fair Labor Standards Act.

This is important for many funeral homes because most still treat preneed sales people as independent contractors when they really don’t meet the test.

Realizing that this will impact mostly small firms, the IRS is offering a quasi-amnesty in the form of a reduced fine.  I suggest you look at this issue carefully.  The cost of being found out of compliance is onerous to say the least.

For some guidelines on what the act has to say about independent Contractors go to this link:

Small Business  Toolkit

There is  a difference between a disciplinary interview and a termination meeting.   Disciplinary meetings are about second chances and action plans.  Termination meetings are about neither.

1. Never reconsider in a termination meeting.  Firing is always a last resort.  Hopefully, you have already given warnings and second chances.  Some employees will try to negotiate or manipulate.  If you have made up your mind to let someone go…just do it.

2. Never fire someone when you are angry.  There is too much risk you may say or do something that you will regret.  If it is so bad it must be done immediately send the person home and calm down and deal with it the next day.

3. Never fire a person of the opposite sex without a witness in the room.

4. Funeral Directors are nice people.  You will want to sympathize…don’t.   Be clear, concise and precise.   Be respectful.  Do not belittle or demean.  Regardless of what happens stick to your resolve.  This is one meeting that should last no more than 5 minutes and preferably only 2.

5. Take responsibility.  Don’t say we, say “I”.

6. Unless you think it is a danger to your firm, give the person some time to collect their things.  I suggest you say something like:  “Why don’t you go get your things and I will meet you back here in ten minutes.”   Do Not Allow Unlimited Time.

7.  If the person becomes emotional give them a few minutes to collect themselves.  If they are unable to do so, then suggest they go home and set a specific time to meet them so they can gather their personal items.

8. ONE LAST THING:  ALWAYS DISCUSS TERMINATION WITH A LAWYER BEFORE PROCEEDING.  If you are in the warning phase have an attorney review your written warnings in advance.

DISCLAIMER:  I AM NOT A LAWYER.  IF IN DOUBT SEE ITEM 8

One of my techie friends told me recently that the term “Home Funerals” is the second most searched term relating to funerals on the internet.  AHEAD OF CREMATION, which is third.

As many of you know it has been my observation that almost all of the innovation in our profession for the past 15 years has only been an introduction of a practice we abandoned more than 80 years ago.  Here is a great example:

This past week my friend, Ernie Heffner, shared a link to a new website focusing on Home Funerals.  Before you click on the link let me draw your attention to new terms introduced into the lexicon: “Home Funeral Guide” and Death Midwife.  Not so sure the latter will catch on.  Any way home funerals are part of the growing trend.  How big a part I am not sure.  But, like Green Burial, it is sure to be a part.  Funeral Homes, buildings dedicated to funerals, sprang up because the industrial era introduced a trend that reduced the size of most homes to the extent that they were no longer suitable for visitations.  Today many homes (my mother called them McMansions) are more suitable than the local funeral home.

Click here to view the site.

When I first began negotiating with insurance companies some 25 years ago I made the same mistake now common in the funeral profession: I assumed they made their money the way all “normal” businesses do.  In other words we generate revenue through sales we pay for our merchandise at wholesale prices generating a cost-of-sales and pay our overhead which, hopefully results in something left over we call profit.  With this model in mind I assumed, like so many of you, that insurance companies made profits by charging premiums (revenue) paying claims and commissions (cost of sales) and paying overhead with the hoped for profit at the end.  Of course no one disabused me of this fallacy.

This thought model created a lot of confusion for me until I realized that it was a completely inappropriate metaphor for understanding how insurance companies make money.  Then along came Warren Buffett with his ‘homespun” style of explanation and the light bulb went on.  Part of the confusion came from confusing profit with funds and understanding the nature of the business.  According to Buffett the issue is less about annual profits than it is about the cost of underwriting and whether you are generating an underwriting profit or loss.  (IMPORTANT: Underwriting profit or loss consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums) But let’s have Mr. Buffett speak for himself.

“The source of our insurance funds is “float,” which is money that doesn’t belong to us but that we temporarily hold. Most of our float arises because (1) premiums are paid upfront though the service we provide – insurance protection – is delivered over a period that usually covers a year and; (2) loss events that occur today do not always result in our immediately paying claims…

Float is wonderful – if  it doesn’t come at a high price. Its cost is determined by underwriting results, meaning how the expenses and losses we will ultimately pay compare with the premiums we have received. When an underwriting profit is achieved – as has been the case at Berkshire in about half of the 38 years we have been in the insurance business – float is better than free. In such years, we are actually paid for holding other people’s money. For most insurers, however, life has been far more difficult: In aggregate, the property-casualty industry almost invariably operates at an underwriting loss. When that loss is large, float becomes expensive, sometimes devastatingly so.

In insurance, the urge to keep writing business is … intensified because the consequences of foolishly-priced policies may not become apparent for some time. If an insurer is optimistic in its reserving, reported earnings will be overstated, and years may pass before true loss costs are revealed (a form of self-deception that nearly destroyed GEICO in the early 1970s).

Finally, there is a fear factor at work, in that a shrinking business usually leads to layoffs. To avoid pink slips, employees will rationalize inadequate pricing, telling themselves that poorly-priced business must be tolerated in order to keep the organization intact and the distribution system happy. If this course isn’t followed, these employees will argue, the company will not participate in the recovery that they invariably feel is just around the corner.”

What Does This Mean For You?

I think one benefit of 31 years specialized experience is having seen some of the best and some of the worst.

Understanding how insurance companies make their money has helped me also understand what makes them stable or, better yet, reliable.  The latest disaster, National Prearranged out of Missouri, was predictable.  More to the point not understanding the economics of insurance led a lot of funeral directors to ignore common sense and cause harm to themselves.

As you might expect, as the CEO of one of the largest preneed marketing companies in the US and Canada, I was being approached to sell one product or another frequently.   I knew that, unlike Buffett and Berkshire Hathaway, reliable preneed insurance companies are forced into a fairly narrow range of investment options with relatively low risk.  This told me I needed to stay away from any one that was operating outside the norm.  The first clue was always too much growth or too much commission or both.  (of course I frequently found with companies operating outside the envelope that what you saw was not always what you got).   But I also looked at investment strategies.  Risk was a critical factor in my analysis.  For instance, investing in mortgages in a hyperinflated real estate market isn’t low risk even before the collapse of 2008.

It is possible to operate outside the norm profitably but then you have to change the model significantly.  Geico did this in 1936 when it eliminated the sales force and went direct to the consumer.  I have yet to see any company in the preneed market with anything approaching a significant change to the model.  So, if  a company is fielding a field sales rep force AND paying higher than normal commissions and growth I simply am not willing to buy their story.  That attitude helped me avoid involvement in American Funeral Insurance which almost defaulted in the early 1990’s, NPS just recently and several others whose names I won’t mention.

As I said in an earlier article I believe there are only 4 viable companies operating today.  The profession’s perseverance in what I call “Applied Ignorance” even after the recent NPS debacle reminds me of the old maxim about wife abuse: “The first time he hits you it’s his fault…the second time it’s yours.”

The next time you encounter a “too-good-to-be-true” scenario…run.

Having addressed, last week, assumptive fallacies let’s look at the actual mechanics of comparing products.

Here is an apples to apples comparison of 4 products from 3 of the 4 companies I would be willing to work with.  CLICK ON THE IMAGE TO SEE IT IN FULL SCALE.

Notice that for each product the Prearrangement Amount remains the same.   The Prearrangement amount is always your apple or common denominator.  Each product has the following growth factors.

• Product A is 2.7% Compounded
• Product B is an age dependent Simple Growth Factor
• Product C is 3.0% Simple
• Product D is 2.5% compounded.

There are 4 variables that all need to be part of any analysis and they are:

• Prearrangement Amount
• Face Value at Issue or Bumpup
• Commissions, marketing allowances and other immediate cash benefits
• Growth

To keep this as brief as possible I am breaking it into two segments.  One this week and another next.  I am sure, dear reader, you have already experienced how difficult it is to compare insurance products on an “Apples to Apples” basis.  I am briefly going to share with you what I have learned over the past 30 years in negotiating and working with insurance companies.  Some of it is inherently cynical.  I apologize for that but one can’t help but become cynical in the process of unraveling the mysteries and enigmas created by the marketing efforts of various companies.  I don’t believe insurance companies are any more intent on hurting or manipulating someone than anyone else.  But, it remains that finance can be complex in its nature and what you think you see may not always be what you get.

Analyses, like scientific experiments, always contain assumptions and these assumptions influence and sometimes dictate the outcome.  So, my first step is to challenge common but falacious assumptions as you begin any analysis.

Assumptions common to funeral home owners:

1. Your needs and the needs of the insurance companies should be aligned.

Any alignment between your needs and theirs is coincidental.  A strong and somewhat harsh statement like that deserves explanation.  There is nothing malicious or malevolent in this.  In fact, you don’t always want them to be aligned.  What you want is for them to be a strong and profitable financial institution.  You want them to be able to pay your claims.  As a consequence they will often need to make changes or adjustments you might prefer they not make.  In other words: they will make decisions that are in their best interest and, other than normal market pressure, you will not have a seat at the decision table.  It is unrealistic, unreasonable and unfair for you to expect them to “watch your back.”  I assume you are an adult … you should watch your own back.  An old latin proverb is appropriate: CAVEAT EMPTOR…LET THE BUYER BEWARE!

2. The company representatives understand their products. 

Few field reps know much more about their products than their company tells them.  Likewise, few funeral directors really understand the business they are in.  This is not a slam on either it is simply a universal truth common to human nature.  It is not bad or good it just is.  The field rep cannot and should not make a decision for you.  You must make an informed decision based on doing your own due diligence.   The nature of people is they hate doing this work.  It is this that makes word-of-mouth so powerful.  Hence, my desire to help you understand the variables for yourself.

3. You know as much about insurance as they do.

In gambling the advantage is always to the house.  Insurance may not be gambling but one assumption that is always wise to adopt is that the advantage is always to the house.  This is accomplished by understanding more about how this works than you do.  It is easier than you might think to unravel some of the confusion…but it does take some effort.  Think of it this way: as a funeral director you have all the answers to your customer’s questions but they don’t always know the questions and you have forgotten many of them.  It is the same when you deal with insurance companies.  They are not responsible for asking your questions for you.

4. You can make a decision on somebody elses averages.

If I can convey only one thing to you it is this: You cannot understand any product by using averages.  You must always price it out on a specific block of business.  In fact your specific block.   When people hire me to compare products for them I always use their specific contracts (minimum of 60). 

5. Commissions or growth are independent of other variables

There is an old saying that “you can’t spend percents”.  Well, it is true.  Did you know for instance that a 2.5% simple growth product can outperform a 3% compound product?  That’s because growth is paid on face value not prearrangement value and the bumpup on some simple growth products is so much higher that it creates a higher growth than the compound product.  The same is true of commissions.  Sometimes a higher commission rate creates lower dollars.   Next week I will show you how this works.

6. You can take sample age brackets and determine what the product will do for you.

Perhaps the single greates fallacy of all.  Again, you must look at the overall block to understand impact.  I have seen many, many people emotionally lock on to the highest commission rate (which is usually between ages 55 and 60 multipay) and ignore that they were being paid significantly less in their sweet spot between 70 and 85.

7. Liking the sales rep or because your buddy uses them is a poor way to make this decision.

In my opinion there are only 4 viable companies right now.  The rest are high risk at best.  Unfortunately, because I don’t feel like putting my lawyer’s kids through college I can’t tell you who I would pick.  But I can tell you that in these financial times youNEED TO DO YOUR DUE DILIGENCE AND FINANCIAL SOUNDNESS SHOULD BE NUMBER ONE.

8. You don’t need to check their math.

There is an old saying: “Figures don’t lie, but liars figure”.  There are ways of presenting things that (in my opinion) are just plain misleading.  One of the most common is to change the denominator in an explanation without making it clear that you have done so.  If you study the example closely you will catch it but you have to study it very closely. 

9. You can get 5 bucks for 4 bucks

This assumption lies at the root of every preneed financial debacle from NPS to Meachem Financial.  Bernie Madoff and his kind depend on this belief.  So, I have a rule: “If it seems too good to be true…it always is.”  Any financial instrument that is promising results outside the norm for the times is immediately suspect…and this includes trusts and annuities.  Proceed at your own risk.  And be confident it will be YOUR risk.

Well, I am guessing I am going to get some interesting phone calls this week.  I have ruffled enough feathers for now.  Next week I will show you how to find the common denominator (the apple) and do this yourself…or hire me to do it for you.

The theory of commissions is that it motivates producers to produce more.  This is not necessarily true.  What is true is that if you overpay two things happen:  Your program becomes economically unsustainable and your producer becomes demotivated.  Here is why:

First, It is my absolute belief that preneed selling should never…repeat…never… be a burden on at need operations.   This is one of the primary reasons I advocate the use of insurance funding.  But more on that next week.  The commission pie you receive from your underwriter is finite.  So, you have to practice some stewardship and manage those finite revenues with wisdom.  In my opinion, your commission revenue should be applied first to drive leads and second to pay sales people.  You may be large enough and wise enough to generate excess commission revenue after you pay expenses but most firms simply aren’t large enough for that to be a reality.

Second, if you overpay your counselor they won’t be happy nor will they perform at above average levels.  They will simply produce at the same or, often, lower levels.  It turns out that people have an unconscious income threshold and if you overpay them they will adjust their activity to get back to their comfort zone…go figure.

One thing is for sure, repeatedly changing commission schedules is a recipe for disaster.  So it is critical that you figure out what is fair and works.   Here is a commission schedule that has worked for me.  It is designed to reward performers and fairly pay the average producer.  Here is a PDF of the base schedule.

The Bonus Schedule Makes It Work

The base schedule will produce an average of 4% to 5% commission on face value production.  This is enough to compensate your underperformer to your average producer.  The actual amount will be dependent on the quality of the business they generate.  That is fair, because that is how you get paid.  NOTE:  THIS SCHEDULE ASSUMES YOU ARE PROVIDING BENEFITS, PAYING FICA TAXES AND INCLUDING PAID VACATION.  IF YOU ARE NOT THEN MULTIPLY EACH CELL BY 1.2.

In addition to the base schedule we paid a monthly bonus (the bonus is not subject to chargebacks).  The bonus was calculated based on Gross Face Production but PAID on NET COMMISSIONS AFTER CHARGEBACKS.  This effectively takes into account the quality of the business the counselor is selling.  Older ages get less and younger ages and multipay get more and persistency impacts the overall total.  Here is the simple bonus schedule:

      Production                                       Bonus                                          

• $0 to $50,000                                                         0%
• $50,001 to $75,0000                                       20%
• $75,001 to $100,000                                        35%
• $100,001 plus                                                       50%

Example:

Gross Face Value Production                               $85,000

Net Commission earned                                            $4,000

Bonus percentage                                                                35%

Bonus                                                                                   $1,400

Total earnings                                                                   $5,400

This plan produced a compensation of about $40,000 for our average performers and substantially more for our top performers.  We had several people producing more than $1,000,000 annually who earned in excess of $100k.  Best of all no one ever complained and we never had to change it AND WE OPERATED PROFITABLY.

Last week I shared with you that the general rule of thumb is one counselor per 200 calls.  I also pointed out that this is more a political question than a mathematical one.  Here is why:

All counselors believe in their hearts that there is not enough business to go around.  If you serve 150 families a year they believe there is not enough business.  If you serve 2,500 they believe there is not enough business.  It’s how they are wired.  So, if you serve 500 families and have 2 counselors they believe one of them is unnecessary.  Sorry,  just saying.

Consider this: It is widely believed that funeral homes generate about 20-25% of their at need annual calls in walk-in call-in business. My experience is that it is about double that amount.  But you and or your staff have become adept at turning people away. After all they come in or call at the most inconvenient times.  Less than half of those who are told they need to come back actually do.  Especially if no one thinks to get their name and phone number and followup.

If everything were balanced then, about 40% of the contracts a counselor sells would be walk-in or call-in the rest (if they ever hope to increase your call base) should come from referrals, direct response leads and the like.   So, if you are serving 500 families a year then your true walk-ins are about 200.  If you only have one counselor and they are selling 200 contracts a year, then you can pretty much guess they are waiting for the phone to ring.  If you have two counselors selling 150 contracts a year each then you have 100 “activity-generated” contracts and at least a few of them are going to be new calls.

But the real reason you don’t have enough counselors is that you, Mr. Owner, don’t really want the political hassle.  Your firm is underperforming but your counselor is happy, your staff (who have bonded with the counselor and have become very empathetic to their fears and concerns) are happy.  No one is complaining so you don’t have to think about it.  So “Happy Mediocrity” rules the day. After all your calls are your calls and your competitors calls are his.  Who are you to think you might persuade someone to switch sides?

But wait, there is another issue:  What does the size of your firm have to do with how many counselors you need?  With the exception of very small communities the answer is: very little.

It turns out the size of your firm has more to do with economy and efficiency than it does with potential.   The larger your firm the more walk-in business.  You pay nothing in marketing to get these contracts so they effectively underwrite the marketing cost of “activity-generated” business.  The size of your market is the factor that impacts potential, not the size of your firm.  Assuming you are up to the cost of the inefficiencies you generate when you try to overreach your current market position you can have more counselors than the arbitrary 1:200 ratio I mentioned last week.  But be prepared for the following turbulence:

• A temporarily truculent counselor or two (they may even quit)
• A temporarily upset staff because you have a truculent counselor or two.
• A few customer complaints from increased activity.
• An increase in lead acquisition cost partially offset by an improved sales mix
• New calls

This may help.  My experience is that any change that impacts the counselor (commissions, lead generation, adding a counselor) results in emotional trauma.  This “Grieving Period” lasts about 18 days.  Don’t ask me why.  Once everyone recognizes you are resolute in your decision, things pretty much settle back to normal…or they leave.

There is a lot of misunderstanding and just plain myth about how much preneed a preneed counselor would sell if a preneed counselor would sell preneed.   In my 25 year experience operating one of the largest third party marketers I have found ways to discern between performers and underperformers

Annual Contracts

This math is pretty simple.  Assuming that they have good lead generation support, an average counselor should be able to sell 2 contracts a week.  Let’s say their average sale is around $7,000. Reducing the 52 week year by 3 weeks for vacation and holidays, that translates to $686,000 in Gross Sales yielding an estimated $620,000 in Net Sales (after lapses, deaths and cancellations).  Here is the math: 49 weeks X 2 contracts X $7,000.  That is a total of 98 contracts annually.

Much is said about preneed to atneed sales ratios.  Counting only contracts, you can easily see that a 1:1 ratio for smaller funeral homes (between 100 and 125) is almost a minimum.  For larger funeral homes (above 200 calls) that ratio becomes more difficult to maintain. More on that in a week or so.

While we are on the topic of annual contracts it is important to point out that, while there is a minimum, there is also a ceiling.  There are clear physical limits to performance.  Even working 50 hours a week it is physically impossible to sustain an activity rate that yields more than 200-250 contracts a year without burning out.  We have a few that do this, however, and they all have one thing in common: they are very focused and efficient with their time.  They prefer not to be drawn into meetings or anything else that will distract them from their mission.   My favorite is a man that sells between $1,250,000 and $1,500,000 consistently year after year.  He is a devoted family man who spends his personal time coaching his children’s sports teams.  HE WORKS AN AVERAGE OF 40 HOURS A WEEK!!!  But he is working all 40 hours.  He does not waste time hanging around the back room chatting with funeral directors during slow times.  He is adept at all the things he needs to do to generate appointments.

I am often asked how many counselors larger funeral homes should have.  Most people don’t realize it but this is really a political question.  The number of counselors is really a function of what you are willing to do to generate leads and what you are willing to put up with.  But, a general rule of thumb is 1 per 200 calls.  Again, more on this in a few weeks.

Quality of Business:

A second parameter for discerning who true performers are is the quality of business they produce.  I generally look for average ages below 72 and the ratio of single pay to modal pay in the neighborhood of 50% (preferably higher in the modal pay).  Chargebacks due to lapses, cancellations and early deaths should be less than 20%.  If they increase above 20% I begin to pay  closer attention to what they are doing to generate business and if it goes above 30% I consider letting them go.  There are exceptions, but high chargeback rates generally indicate something funny going on that I will have to pay for after the counselor suddenly disappears.

Average Sale:

I look for a minimum average sale equal to the funeral home at need average.  It is important to make this calculation from actual contracts as opposed to averages gleaned from insurance reports.  Counselors (with the support of owners) often include cash advances in their prepaid contracts and this significantly inflates their average.  Most of our counselor averages are above the at need average on an “apples to apples” basis.

A few factors contribute to averages below the at need average.  The first and less common is that they really don’t believe in the value of funerals.  There is no cure for this…they need to go.  The second, and far more common, is that they are not properly trained to present.   This can be remedied quickly by a competent sales trainer.

One final factor that you should be tracking is the percentage of cremation as compared to your current at need percentage.  When the counselor percentage is higher than the at need percentage we have found that this is not a market issue but a training issue.  Have your sales manager go on calls with that counselor and you will see what I mean.

And while I have touched on the topic of sales managers here is a few clues for them.  They need at least 5 counselors to be a full time manager.  They need to be in the field with their people at least 75% of their time.  Desk Jockeys are not good managers.  They need to be encouragers not tyrants…just my opinion.