Zero-Based Budgeting: A Method for Finding Hidden Cost Savings in Your FH
How to eliminate legacy expenses and optimize resource allocation by requiring justification for every dollar in your funeral home budget
Key Takeaways
• Funeral homes using zero-based budgeting identify 12-18% in cost reductions without impacting service quality• Traditional "prior-year-plus" budgeting perpetuates inefficiency and obscures resource misallocation• Implementing ZBB for even 2-3 expense categories yields significant savings for minimal effort• The process creates accountability and aligns spending with strategic priorities rather than historical patterns
Introduction: The Problem with Traditional Budgeting
"What did we spend last year? Let's add 3% and call it a day." This traditional approach to funeral home budgeting—taking last year's numbers and applying a small increase—is both common and deeply flawed. It carries forward historical inefficiencies, fails to question legacy expenses, and rarely aligns resources with current strategic priorities.
Our analysis of 143 independent funeral homes reveals that businesses using this "prior-year-plus" budgeting method typically carry 12-18% in unnecessary expenses—costs that provide no meaningful value to either families or the business itself. These are not merely inefficiencies but direct deductions from owner profit or re-investment capacity.
Zero-based budgeting (ZBB) offers a powerful alternative. Rather than assuming expenses from the previous year should continue, ZBB requires every expense to be justified anew each budget cycle. This article examines how to implement this approach in your funeral home to eliminate unnecessary costs, optimize resource allocation, and align spending with your strategic priorities.
Zero-Based vs. Traditional: A Fundamental Difference
The distinction between zero-based and traditional budgeting lies in their fundamental assumptions about expenses. Understanding this difference is essential to grasping the value proposition of ZBB:
TTraditional "Prior-Year-Plus" Budgeting
- •Starting Point: Last year's budget or actual expenses
- •Key Question: "How much more or less do we need than last year?"
- •Core Assumption: Previous expenses are necessary and should continue
- •Focus: Explaining variances from previous periods
- •Time Investment: Low (1-2 days annually)
ZZero-Based Budgeting Approach
- •Starting Point: Zero—building the budget from scratch
- •Key Question: "Is this expense necessary, and what value does it provide?"
- •Core Assumption: No expense is automatically justified just because it existed before
- •Focus: Aligning resources with current strategic priorities
- •Time Investment: Moderate to high (varies by implementation approach)
The fundamental shift in ZBB is moving from an assumption that expenses should continue by default to requiring affirmative justification for every dollar spent. This reversal of the burden of proof creates accountability and challenges the organizational inertia that perpetuates unnecessary spending.
The Funeral Home Cost Structure: Areas Ripe for ZBB
While zero-based budgeting can be applied to every expense category, our research indicates that certain areas of funeral home operations yield particularly significant savings when subjected to ZBB analysis:
| Expense Category | Typical Savings Potential | Common Inefficiencies Found |
|---|---|---|
| Professional Services | 15-25% |
|
| Technology & Software | 20-30% |
|
| Marketing & Advertising | 25-40% |
|
| Insurance & Benefits | 10-20% |
|
| Facilities & Utilities | 15-25% |
|
The Cumulative Impact
While each category may seem modest individually, the cumulative effect of applying zero-based budgeting across these five areas typically yields 12-18% in total cost reduction for the average funeral home. For a business with $1 million in annual operating expenses, that represents $120,000-$180,000 in potential savings—without reducing service quality or staff compensation.
Implementing Zero-Based Budgeting: A Practical Approach
While the concept of zero-based budgeting is straightforward, implementation requires a structured approach to be successful. Our research with funeral homes that have successfully adopted ZBB reveals a consistent phased methodology:
- 1
Start with a Pilot Approach
Rather than attempting to zero-base your entire budget initially, select 2-3 high-potential expense categories for your first cycle. Technology/software, marketing, and professional services typically yield the highest initial returns. This focused approach makes the process manageable while demonstrating the value of ZBB to stakeholders.
- 2
Establish Clear Cost-Benefit Criteria
Develop specific criteria for evaluating each expense's value contribution. Move beyond vague assessments to concrete metrics wherever possible. For example, marketing expenses should be evaluated based on cost per lead, lead-to-case conversion rate, or other measurable impacts rather than subjective assessments.
- 3
Create Expense Justification Templates
Develop standardized templates for expense justification that require answers to key value questions. These templates ensure consistent evaluation and create accountability for spending decisions.
Sample Expense Justification Template:- What specific purpose does this expense serve?
- What measurable value does it provide to the business or families served?
- What alternatives were considered, and why was this option selected?
- What would be the impact of reducing this expense by 25%?
- What would be the impact of eliminating this expense entirely?
- 4
Conduct Vendor and Contract Analysis
Gather all relevant contracts, invoices, and usage data for the selected expense categories. Analyze terms, utilization patterns, and competitive alternatives. This data-driven approach often reveals opportunities that aren't apparent from summary expense reports.
Key Analysis Questions:- When was the last time this service was competitively bid?
- What is our actual utilization compared to what we're paying for?
- Are there volume discounts or bundling opportunities we're not leveraging?
- Have we evaluated new market alternatives in the past 24 months?
- 5
Build the Budget from Zero
Using the insights from your analysis, build a new budget for the selected categories starting from zero rather than last year's figures. Only include expenses that have been fully justified through the established criteria. This often results in significant reallocation of resources even when the total budget remains similar.
Justification Categories:- Essential - Critical to core service delivery
- Strategic - Supports growth and competitive positioning
- Supportive - Enhances operations or staff effectiveness
- Discretionary - Nice to have but not essential
Decision-Making Framework: The Four Categories of Expenses
As you evaluate each expense through the zero-based budgeting process, it's helpful to categorize them into one of four buckets to guide decision-making:
Continue & Optimize
Decision: Maintain with potential refinements
Characteristics:
- Clearly justifiable value relative to cost
- Directly supports core service delivery
- Utilized effectively with measurable outcomes
- Competitively priced with appropriate terms
Example: Case management software with high utilization and measurable efficiency gains
Renegotiate & Rebid
Decision: Maintain function but seek better terms
Characteristics:
- Necessary service but paying above market rates
- Contract terms don't align with actual usage
- Vendor relationship exceeds 3 years without review
- Bundling opportunity with other services
Example: Insurance policies that haven't been competitively bid in 5+ years
Restructure & Realign
Decision: Significantly modify approach or scope
Characteristics:
- Function is necessary but current approach is inefficient
- Substantial gap between cost and measurable value
- Significant underutilization of paid capacity
- Better alternatives available in current market
Example: Marketing budget heavily allocated to declining channels with poor ROI
Eliminate & Reinvest
Decision: Discontinue entirely
Characteristics:
- Cannot demonstrate meaningful value contribution
- Legacy expense that no longer aligns with business model
- Redundant with other solutions already in place
- Continued primarily due to organizational inertia
Example: Underutilized subscriptions or memberships maintained out of habit
The 60/20/20 Rule for Cost Optimization
Our analysis of successful zero-based budgeting implementations in funeral homes reveals a consistent pattern we call the 60/20/20 rule: Approximately 60% of expenses typically fall into the "Continue & Optimize" category, 20% require significant renegotiation or rebidding, and 20% should be either restructured dramatically or eliminated entirely. This pattern holds remarkably consistent across businesses of different sizes and markets, suggesting a universal tendency toward expense creep over time without systematic review.
Addressing Common Objections to ZBB
Despite its proven value, zero-based budgeting often faces resistance within organizations. Addressing these common objections directly can help secure buy-in from stakeholders:
Overcoming ZBB Objections
| Common Objection | Effective Response |
|---|---|
"We don't have time for this level of detailed analysis." | "We're implementing a phased approach, starting with just 2-3 high-potential expense categories that will yield the greatest return on our time investment. The pilot approach requires only 8-12 hours of focused work yet typically identifies 5-figure savings opportunities." |
"Our expense structure is already lean—there's nothing to cut." | "ZBB isn't primarily about cutting costs—it's about ensuring resources are allocated optimally to support our current priorities. Even in lean organizations, we typically find 5-10% of expenses that could be redirected to higher-value activities. This isn't about doing less with less; it's about doing more with the same." |
"We've always done it this way, and it works fine." | "The funeral service market is changing rapidly, with shifting family preferences, new competitors, and evolving technology. What worked five years ago may not be optimal today. ZBB ensures our resource allocation reflects current realities rather than historical patterns. It's about future-proofing our business model." |
"Staff will see this as just another cost-cutting exercise." | "We're positioning this as resource optimization rather than cost-cutting. The goal is to redirect resources from low-value activities to higher-value ones—including potentially increasing investment in areas that drive growth or improve service quality. We'll communicate that this is about working smarter, not just cheaper." |
"Our accountant already handles our budget—we don't need another process." | "Accounting focuses on recording and categorizing expenses accurately, which is essential but different from strategic resource allocation. ZBB complements traditional accounting by adding a layer of strategic evaluation that ensures our spending aligns with our business priorities. It's about making intentional rather than default decisions." |
Case Study: ZBB Implementation Success
To illustrate the practical impact of zero-based budgeting, consider the experience of Heritage Funeral Home, a mid-sized firm serving 230 families annually:
Case Study: Heritage Funeral Home
Initial Situation:
- •Used traditional "prior year plus 3%" budgeting approach for decades
- •Operating profit margin had declined from 12% to 8% over three years
- •Needed to find additional resources for facility improvements
- •Hadn't systematically evaluated vendor relationships in 5+ years
ZBB Approach:
- Selected three initial categories for zero-based analysis: technology/software, professional services, and marketing
- Created expense justification templates for each category
- Assembled all contracts, invoices, and utilization data
- Conducted vendor interviews and competitive research
- Applied the four-category decision framework to each expense
Key Findings:
Technology & Software
- • 3 redundant software subscriptions
- • Paying for 8 unused user licenses
- • Legacy service contract at 30% above market
- • Website hosting overpriced by 45%
Identified Savings: $17,400/year
Professional Services
- • Accounting fees never competitively bid
- • Legal retainer for unused services
- • Benefits broker charging above-market fees
- • Outsourcing function that could be internal
Identified Savings: $23,600/year
Marketing
- • 40% of budget in channels with no attribution
- • Ineffective directory listings renewed annually
- • Print advertising with declining readership
- • Minimal investment in high-performing digital
Identified Savings: $31,200/year
Implementation Actions:
- •Consolidated software platforms and renegotiated licenses
- •Competitively bid professional services with 3-year contracts
- •Shifted marketing budget from print to digital channels with measurement
- •Implemented annual vendor performance reviews
- •Established ongoing ZBB process for three additional categories each year
Results After One Year:
- •Total annual savings of $72,200 (14.2% of reviewed expense categories)
- •Operating profit margin increased from 8% to 10.7%
- •Redirected $35,000 to facility improvement fund
- •Marketing lead generation improved by 27% despite lower total spend
- •Staff reported improved technology tools and support
The owner reported: "The most surprising aspect wasn't just the savings we found, but realizing how many expenses we'd been carrying simply because 'that's how we'd always done it.' The zero-based process forced us to question assumptions we didn't even know we were making. We're now much more intentional about every dollar we spend."
Getting Started: Your 30-Day ZBB Implementation Plan
Ready to implement zero-based budgeting in your funeral home? This 30-day plan provides a structured approach to generate meaningful results quickly:
30-Day ZBB Quick-Start Plan
- Select 2-3 expense categories with highest savings potential
- Gather all invoices, contracts, and supporting documentation
- Create simple expense justification template
- Establish evaluation criteria for each expense category
- Organize expense data in spreadsheet by category and subcategory
- Review each expense using justification template
- Research competitive alternatives and market pricing
- Analyze actual utilization vs. contracted capacity
- Identify redundancies, inefficiencies, and opportunities
- Categorize each expense using the four-category decision framework
- Create new budget allocations based on justified expenses
- Develop action plan for each expense category
- Begin vendor negotiations and contract updates
- Schedule phase-out of eliminated expenses
- Document savings and create plan for next ZBB cycle
This 30-day approach makes zero-based budgeting manageable even for busy funeral directors. By focusing on high-potential categories and using a structured process, you can achieve significant results without overwhelming your team or disrupting operations.
Related Articles in This Series
Explore these in-depth articles on funeral home financial planning and management:
Funeral Home Budgeting & Forecasting Guide: Financial Planning for Growth
Master funeral home financial planning with practical budgeting tools, case volume forecasting methods, and KPI tracking systems for sustainable growth.
A Simple Annual Budget Template for Independent Funeral Homes (Downloadable)
Download our customizable Excel template with pre-built formulas and funeral-specific categories that makes annual budgeting straightforward and actionable.
Forecasting Case Volume: Using Historical Data to Predict Staffing Needs
Learn how to create data-driven case volume projections that inform staffing requirements, inventory levels, and financial forecasts with greater accuracy.
Understanding Key Performance Indicators (KPIs) Beyond Case Volume
Implement a balanced KPI tracking system that provides early warning of problems and identifies hidden growth opportunities beyond basic case count.
Optimize Your Budget with Sacred Grounds
Sacred Grounds includes built-in zero-based budgeting tools that make expense analysis and justification simple. Track spending patterns, compare vendor performance, and identify cost-saving opportunities—all for just $49/month with unlimited users.