Funeral Home Vendor Analysis: Optimize Vendor Relationships and Reduce Costs
Most funeral homes overpay vendors through lack of competitive bidding. Annual vendor analysis recovers $5,000-15,000 in unnecessary costs.
Vendor Reality
Funeral homes typically renew vendor contracts without competitive benchmarking. Vendors gradually increase prices, knowing most funeral homes won't shop alternatives. Simple competitive bidding captures significant savings.
The Hidden Cost of Vendor Complacency
Most funeral homes have vendor contracts from 5-10 years ago. They've been renewing automatically, with vendors gradually increasing prices by 3-5% annually. This "death by a thousand cuts" approach means you're overpaying significantly.
Typical scenario: A funeral home pays an outsourced embalming service $150/case. They've been paying this for 8 years. Annual volume: 50 cases = $7,500/year. Competitive market rate today: $100-125/case. One conversation with a competitor reveals you're overpaying $1,500-2,500 annually on this service alone.
Hidden Vendor Costs (Typical Funeral Home)
- • Embalming services (outsourced): 15-20% above market rate = $1,500-2,500/year
- • Crematory operations: 10-15% above market rate = $1,000-2,000/year
- • Cemetery plot holder fees: Often not competitively bid = $500-1,000/year
- • Accounting/bookkeeping: Legacy rates from 10 years ago = $2,000-5,000/year
- • Funeral merchandise suppliers: Resale markup not competitive = $1,000-3,000/year
Total annual overspend: $6,000-15,000 (or 2-5% of revenue for typical home)
Three Vendor Evaluation Dimensions
1. Cost
Direct pricing and fee structure. Compare apples-to-apples for identical services.
2. Quality
Service quality, reliability, responsiveness. Track issues and resolution times.
3. Relationship
Support quality, communication, willingness to work together on issues.
Common Vendor Cost Overages
- Credit card processing: Paying 0.5-1.2% above market rate
- Insurance assignment: Charging 3-5% when market is 2-2.5%
- Cemetery/crematory fees: Unaudited annual increases of 3-6%
- Vehicle maintenance: Contracts exceeding actual service needs by 20-35%
Key Vendor Categories to Evaluate Annually
Embalming/Prep Services (if outsourced)
Most common overspend: 15-25% above market; easy to benchmark
Crematory Services
Annual increases often unquestioned; market rates vary 10-40% by region
Accounting/Bookkeeping (if outsourced)
Legacy contracts often 30-50% above current market; ripe for renegotiation
Merchandising Suppliers
Casket/urn resale markups: verify you're competitive (20-35% typical margin)
The Vendor Scorecard Method
Create a simple scorecard to evaluate vendors systematically:
| Criteria | Weight | Score | Total |
| Pricing | 30% | /10 | /3.0 |
| Quality | 25% | /10 | /2.5 |
| Reliability | 25% | /10 | /2.5 |
| Responsiveness | 20% | /10 | /2.0 |
Annual Vendor Audit Process
Implement a formal annual vendor review to prevent complacency. This process takes 4-6 hours annually and typically recovers $5,000-15,000 in cost savings.
Step 1: Compile Vendor Costs (Week 1)
Extract the last 12 months of spending for each vendor category from your accounting system. Calculate average cost per unit/case. Document contract terms: expiration dates, auto-renewal clauses, price escalation terms.
Step 2: Identify Benchmarking Opportunities (Week 1)
For each vendor category, reach out to 2-3 competitors or alternative providers and request quotes for identical services. Document pricing differences. Flag any vendor 10%+ above market rate.
Step 3: Score Current Vendors (Week 2)
Using the scorecard method, rate each vendor on cost, quality, reliability, and responsiveness. Score on a 1-10 scale for each criterion. Calculate weighted total score.
Step 4: Make Vendor Decisions (Week 2)
If current vendor scores 7+ on weighted scorecard AND pricing is competitive, renew contract but request 5-10% rate reduction with new competitive quotes as leverage. If scoring below 7 or pricing 10%+ above market, initiate RFP process and prepare to transition.
Outsourcing vs. In-House: Key Decisions
For some functions, the vendor analysis question is whether to outsource at all. Consider these factors:
| Service | Outsource If... | Keep In-House If... |
|---|---|---|
| Embalming/Prep | Volume under 30/year or no staff expertise | Volume over 50/year with qualified staff |
| Accounting/Bookkeeping | Less than 5 employees or no accounting background | Complex multi-location operations with strong finance team |
| Crematory Operations | Volume under 20/year or equipment aging | Volume over 30/year with modern equipment |
| Marketing/Web | Limited digital expertise or no in-house designer | Digital-savvy staff and 5+ ongoing marketing needs/year |
| Technology Support | All scenarios (vendor managed services are cheaper) | Very rare - vendor support almost always better value |
Related Vendor Evaluation Topics
For deeper analysis of specific vendor relationships and technologies:
- Outsource Accounting vs. In-House - Compare total cost of ownership and implementation
- Vendor Scorecard for Third-Party Embalmers - Evaluate embalming service providers
- Digital Document System ROI - Calculate savings from going digital
- Assessing Cloud Vendor Reliability - Evaluate uptime and backup capabilities
- Technology Vendor Exit Strategy - Plan for vendor transitions
30-Day Quick Win Implementation
Immediate Actions (Start This Week)
- Day 1: Extract last 12 months spending by vendor from accounting
- Day 2-3: Call 2 competitors for quotes on your top 3 vendor categories
- Day 4-5: Compare pricing; identify any 10%+ overages with current vendors
- Day 6-7: Schedule renegotiation calls with top 2 overpriced vendors
- Week 2: Implement scorecard for all vendors; document findings
Expected 30-day savings: $500-2,000 from renegotiation alone
Annual Vendor Management Metrics
Track these metrics to ensure vendor relationships remain efficient:
| Metric | Target | Why It Matters |
|---|---|---|
| Vendor Cost Index | Flat or -3% YoY | Detects creeping price increases; goal is market-rate pricing |
| Competitive Bid Gap | Within 5% of market | Your pricing vs. market rate; if gap growing, time to rebid |
| Vendor Scorecard | 7+ out of 10 | Overall vendor performance; below 7, consider alternatives |
| Issue Resolution Time | 24-48 hours | How fast vendor responds to problems; indicates quality of support |
| Annual Vendor Spend | Tracked quarterly | Ensure spending stays within budget and no unauthorized vendors added |