The Value of the Next Sale

One of the least understood but most valuable concepts in our industry is that of the incremental sale.  "The value of the next sale is always more than the last one."

 

In the funeral business, the well run establishments have a cost of sales percentage related to revenue of 20% or less.  The cost of labor, marketing, operations and G&A add another 50 to 55% of cost.  Let's say our EBITDA is 25% of of sales.  If we make one more $10,000 sale, our EBITDA doesn't go up by $2,500, it goes up by $8,000.  So this last sale put $5,500 more in your pocket than the average of all the other $10,000 sales you made before it.

 

How can this be true?  Typically we do not fully utilize our staff, facilities, utilities, etc. to 100% of their capacity.  Thus adding another call to our business only results in the additional cost of the casket, vault, etc. contained in our Cost of Sales figures.  So we have a $10,000 increase in revenue but only a $2,000 increase in cost.

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And, as we've been repeating over and over, it's not the extra $8,000 in the bank that's really exciting.  It's that your business is now worth $80,000 more!  (Okay, I know we have to make this extra $10,000 three years in a row for this to actually be true but you get the picture.)

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This same concept is true in the cemetery business as well but the addition of sales commissions and less margin on certain merchandise causes the incremental value to be less than the 80% we achieve in the funeral side.

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It is usually easier to increase your Gross Profit by $1 than to cut costs by a dollar but both are achievable and doubles the impact on your business's value.

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