The real opportunity in memorial business

Every generation needs a revolution -an entrepreneurial revolution

Ateneo Professional Schools
Makati City Philipppines
June 19, 2016

Happy Rizal Day?  It is the birthday of our National Hero Dr. Jose Rizal

Happy Fathers Day.

Where is the real opportunity in memorial business?  (Opportunity - where large margins are and where is volume)

For a time many thought it is in memorial park.  So a lot went into memorial park development  - contractors, entrepreneurs real estate developers thinking there is gold pot in a memorial park, to be only disappointed.

Why is this so?  While the margins in memorial park plots could be huge, as much as 70 to 80%, sales is slow because the memorial park plots cater to only 9 to 10% of population.   So if you live in a town of 100,000/5, you talk of 20,000 households.  and 10% would be only 2,000.  And if you have an inventory of 20,000 plots, you could hardly sell to the locality because of competition having sold to them, or you having sold to them all ready.  It would take forever to sell the remaining inventories. Unless you have active sales force and or very unique product or service it is a waiting and seeing game or possibly a bankrupt memorial park.  The bulk of the market, the remaining 20,000 prospects would go to the municipal or Catholic Cemetery where burial costs would be about P5,000 to P20,000 for a 5 year lease vs about P100,000 in a memorial park (plot plus interment cost) and you add the cost of memorial service and casket, that is additional P30,000 to P50,000 minium.

The real consistent money would be made in funeral and or memorial service because that is the first thing that the bereaved would look for.  You need casket and service. You have the option of burial at the memorial park or body crypts at public or catholic cemetery which is cheaper.

Memorial service depending on the price would have a margin of between 50 to 90%

So you think that is where the money is to be made?

No it is in the memorial plans The pre need memorial service.?

But then we thought the plans are closing and failing.  Oh yes for the education and  pension and othe plans.  The rise in cost of education and low investment opportunities have left big holes in the liquidity and solvency of the educ and pension plans

But the memorial plans   Let us try to examine the costs and revenue stream  (We are on the final stages of buying one now)




On gross profit

  Memorial Plan budget:

                   Commission   -         10% (front end)

                   Trust fund                  60%  (the pre need code prescribes only 49%)

                   Insurance                     5%

                   Admin and ovehead     20%

                   Incentive                     5%

          Fund management

                   60%                           TF balance

                  Investment  income at 5%   x 20 years       100%                                =   1.20

                  Less cost of casket    and service                                                                 . 50
 
                                                                                                                                        .70

                  Add  lapsation and lost CO                                                                           .20

                   Add upgrades                                                                                                .10    

Gains :         Total    100%
                                                                                                                                                                                              On size of market:    

           The big market is still the bottom of the pyramid where there are 70% of the population waiting to be served. However the product to be served must be affordable

          What are the products that can be sold:

                                                                                                     MA for 5 years at 5% per annum

          Casket  + service   say P27,000                                            P560.00 say 550 only

                         SPLP has abandoned this market and moved up to P800 to P1000 monthly

         Cremation               say P20,000                                             P420.00

         Prepaid interment service say P25,000                                    525.00

          Bundled products:

         Casket +   BC (5 year lease)  27 + 14    = P41,000                860.00

These are the actuarial estimates for the product

So let us assume our five year projection are as follows and we sell only the P560.00 per unit/ma
                                                              Projected cash flow                       Total
1st year      5,000 units                               15,360                                 15,360

2nd year    10,000 units                              25,000
                                                                    33,000                                 58,000

3rd year     15,000 units                              50,400
                                                                    50,000
                                                                    30,000                               130,000

4th year      25,000 units                             84,000
                                                                   100,800
                                                                    50,000
                                                                    30,000                               264,000

5th year      40,000 units                             134,000
                                                                    168,000
                                                                    100,000
                                                                      50,000
                                                                      30,000                            482,000


                                                Total                                                    949,000

Without counting the investment income yet, the MP company can make say 5 to 10% of net income provided its overhead is only 10% max.  (45 m to 90 m) And having invested only P5 million initially for the premium

Thus if all will complete payments (assuming 100% collection)in ten years  and after servicing all accounts,

the gains will be x 100%  =   95,000 x 27,000 x 200% = 2,565,000,000  Wow.