The Four-Number Funeral Home Valuation Screen

Most owners want one number: what is the funeral home worth? Before anyone can answer that responsibly, four smaller numbers have to be on the table. We built this screen so sellers, buyers, and lenders all start from the same facts, in the same order, before arguing about a multiple. It sits at the center of our funeral home valuation hub.

What does the Four-Number Funeral Home Valuation Screen measure?

It measures durability, conversion, and liability. Two numbers test how durable the revenue is, one tests how much of it turns into cash, and one tests what obligation comes with the preneed backlog.

The four numbers always appear in this order:

1. Call-volume trend: average annual calls over the last three full years, and the compound annual change.
2. Average revenue per call, by disposition mix: funeral service and merchandise revenue, excluding cash-advance pass-throughs, divided by calls, shown separately for traditional burial, cremation with services, and direct cremation, with each one’s share of calls.
3. Normalized earnings margin: seller’s discretionary earnings (SDE) for a single-location, owner-operated firm, or adjusted EBITDA for a larger or multi-location firm, divided by revenue after documented add-backs.
4. Preneed funding ratio: the current funded value of preneed (trust balances plus insurance policy values) divided by the current retail cost to deliver every outstanding guaranteed obligation at today’s General Price List (GPL).

The output is a direction within a range: top, middle, or bottom. Real estate is valued separately, and the screen never stands in for a quality of earnings (QoE) review.

How do you calculate the call-volume trend?

Average the last three full years of calls, then compute the compound annual change from the first year to the third. The average sets the base; the direction tells a buyer whether that base will hold.

Use the formula (Year 3 calls ÷ Year 1 calls)^(1/2) − 1. Count calls the way your call reports do, one per death served, and keep at-need and preneed-matured calls in the same count. Read our definition of call volume for edge cases like shipping and trade work.

Flat or rising calls support the upper part of a range. A sustained decline pushes toward the bottom, even when the latest year looks fine. Size matters too: Glenn Gould, quoted in Funeral Director Daily’s 2025 piece on small-volume firms, says 30% of firms do fewer than 100 cases a year and 68% do fewer than 200.

How do you measure average revenue per call by disposition mix?

Divide funeral service and merchandise revenue by calls for each disposition type, then record each type’s share of total calls. The mix matters as much as the average, because it shows where the firm is heading.

Strip out cash advances first. Then build three lines: traditional burial, cremation with services, and direct cremation. Our page on average revenue per call walks through the case-level detail buyers request.

The mix is where national trends show up in a single firm’s numbers. NFDA’s media center statistics put the projected 2025 U.S. cremation rate at 63.4%, rising to 82.3% by 2045. The Cremation Association of North America’s industry statistics report a 2025 U.S. rate of 62.8%, projected at 69.1% for 2030. A firm whose direct-cremation share is climbing faster than its market will see average revenue per call slide even with stable calls.

What counts in the normalized earnings margin?

It is SDE or adjusted EBITDA divided by revenue, after add-backs you can document. Use SDE for an owner-operated single location and adjusted EBITDA for larger or multi-location firms; never mix the two in one comparison.

Typical add-backs include the owner’s salary and benefits (for SDE), depreciation, interest, and true one-time costs. Each needs a receipt, a payroll record, or a ledger entry. Our guide to funeral home add-backs covers which ones buyers accept and which they reject.

Margin tells a buyer how much of each revenue dollar becomes cash. A healthy margin with clean support moves a firm up. A thin margin, or a strong one built on add-backs nobody can prove, moves it down.

How do you compute the preneed funding ratio?

Divide the current funded value of all preneed by the current retail cost to deliver every guaranteed obligation at today’s GPL. Below 100%, the firm carries a shortfall a buyer will deduct.

Funded value means trust balances and insurance policy values confirmed to current statements, not internal records. The denominator re-prices each guaranteed contract at what it would cost to deliver today. The full method is The Preneed Reconciliation Ladder, whose final rung produces the dollar gap this ratio summarizes.

What does the screen look like on a real set of numbers?

Here is a complete run on an illustrative firm. The inputs are made up but realistic, and every step of the math is shown.

You can repeat this with your own figures in the funeral home valuation calculator, which uses the same four-number logic.

How do sellers, buyers, and lenders each use the screen?

Each party uses the same four numbers to answer a different question. Sellers ask whether an offer is in the right zone, buyers ask whether to spend money on diligence, and lenders ask whether the earnings will support debt.

Sellers run it before answering a consolidator’s call. If the offer implies the bottom of a range but your four numbers point to the top, you know which numbers to defend. If your funding ratio is 88%, you know the deduction is coming.

Buyers run it on the teaser and first data request, before signing a letter of intent (LOI). Larger buyers think in adjusted EBITDA: Carriage Services’ Q4 2025 earnings call guided to “7x–9x EBITDA” for its own planned 2026 acquisitions. That is one public company’s guidance for its deals, not a market norm, and it applies to EBITDA, not SDE.

Lenders use the numbers as a reasonableness check. Under SBA SOP 50 10 8.1, effective Oct. 1, 2026, a change-of-ownership loan needs a formal valuation from a credentialed source, a QoE when the purchase price is $3 million or more, and generally 1.25x debt-service coverage. The screen tells a lender early whether those tests are likely to pass.

What are the most common ways people misuse the screen?

The biggest misuse is treating its output as a price. The screen sets direction within a range; the range itself depends on size, market, buyer type, and real estate, which a full valuation addresses.

Other errors we see repeatedly:

• Using one good year. A single strong year hides a three-year decline. Always use three full years.
• Leaving cash advances in revenue. This inflates revenue per call and understates the margin.
• Mixing SDE and adjusted EBITDA. A 24% SDE margin and a 24% adjusted EBITDA margin describe very different firms.
• Using contract face values for preneed. The denominator is today’s GPL cost, not the original contract price.
• Folding in real estate. Owned buildings are appraised separately; blending them distorts every ratio.
• Skipping the documentation. An add-back without support will be removed in diligence, so remove it from the screen first.

Run all four numbers with real support behind them, and the conversation about value starts from facts instead of hopes.