How to read a funeral home P&L: revenue per call, merchandise margin, and add-backs

A funeral home P&L looks like any small-business income statement until you ask what each line actually holds. Revenue mixes the firm’s own work with money it collects for cemeteries and newspapers. Payroll may leave out the owner who works every weekend. Rent may be whatever the family decided to charge itself. This guide reads the statement line by line, the way a buyer and a lender will, and is part of our guide for funeral home buyers.

What lines appear on a funeral home P&L?

Most statements show professional service revenue, merchandise revenue, cash advance items, other income, cost of goods sold, and operating expenses. The illustrative statement below, for a made-up 180-call firm that owns no crematory, is the example we use throughout this page.

Why should cash advance items come out of revenue?

Because they are not the firm’s sales. They are money the funeral home collects from a family and pays to someone else, so leaving them in revenue makes the business look bigger and its margins thinner than they are.

The FTC Funeral Rule at 16 CFR Part 453 defines a cash advance item as anything described to a purchaser as a cash advance or similar term, or obtained from a third party and paid for on the purchaser’s behalf. Its examples include cemetery or crematory services, clergy honoraria, flowers, obituary notices, and death certificates. Section 453.3(f) also requires a specific disclosure on the itemized statement if the provider charges a markup or keeps a rebate on those items. In our example, the $5,000 gap between cash advances billed and disbursed is either a markup, which should be disclosed, or a timing difference. Ask which.

What belongs in other income?

Other income usually holds preneed insurance commissions, trust earnings released at maturity, and small items such as rental of the chapel. Keep it separate from operating revenue and ask which parts will continue after closing. Commissions depend on the new owner’s insurer relationship, and trust income depends on the contracts actually maturing. In the example, $18,000 is small, but in some firms this line hides a one-time distribution that made the final year look stronger.

How do you separate service revenue from merchandise revenue?

Split the two and compute each per call, by disposition. Services are where most profit lives; merchandise carries its own cost of goods and shrinks as cremation grows.

In the example, merchandise revenue of $310,000 against $130,000 of cost gives a merchandise margin of 58.1%. Service and merchandise revenue together are $1,030,000, or $5,722 per call. That is the base figure for average revenue per call, but a buyer needs it by disposition: traditional burial, cremation with services, and direct cremation each carry very different revenue.

For context, the NFDA 2023 General Price List Study, as reported by Funeral Director Daily, put the national median price of an adult funeral with viewing and burial at $8,300 and a funeral with viewing and cremation at $6,280. Those are medians for defined packages on price lists, not average revenue per call. A firm’s own average will usually be lower because direct cremations and simpler services pull it down.

How does disposition mix change the P&L?

Mix changes revenue much faster than it changes cost. A firm can keep the same call count, lose burials to cremation, and watch profit fall because staff, building, and fleet costs barely move.

Now move ten burial families to direct cremation with no change in total calls. Revenue falls by 10 × ($8,100 − $2,050) = $60,500. Some merchandise cost disappears with the caskets and vaults, but payroll, rent, and vehicles stay. Most of that $60,500 comes straight out of SDE. That is why a buyer reads the P&L alongside a call report by disposition, never alone.

What do payroll, facility, and vehicle costs tell a buyer?

They tell you what it really costs to answer every call, 24 hours a day, without the current owner. Most normalization work happens on these three lines.

Payroll

Payroll is usually the largest expense. Price every role the owner fills, including arrangements, removals, embalming, and on-call nights. The Bureau of Labor Statistics reports a May 2025 median wage of $78,790 for funeral home managers and $55,010 for morticians, undertakers, and funeral arrangers. Local pay, benefits, and payroll taxes will differ, but those medians are a sanity check on any replacement wage.

Facility and vehicles

When the owner also owns the building, rent is often set for tax or family reasons rather than at market. Replace it with market rent, or with real estate costs if you are buying the property. On vehicles, separate the hearse, removal van, and family car from personal vehicles run through the business, and note replacement timing, since a fleet bought all at once will need replacing all at once.

How do you recast the P&L into SDE and adjusted EBITDA?

Start from net income, add back owner pay, depreciation, interest, and documented one-time or personal costs to reach seller’s discretionary earnings (SDE). Then subtract a market wage for the manager and normalize rent to reach adjusted EBITDA.

Every add-back needs a receipt, contract, or bank record. Our guide to funeral home add-backs sorts the ones buyers and lenders accept from those they reject, and a quality of earnings review ties the recast to bank deposits. Definitions matter in negotiation. Carriage Services, for example, told investors on its Q4 2025 earnings call that it expected 7–9x EBITDA for planned acquisitions; a $50,000 gap between two EBITDA definitions is worth several hundred thousand dollars at those multiples.

Which KPIs should a buyer pull from the P&L?

Calculate a short set of ratios for each of the last three years and look for direction, not just level.

1. Calls per year, by disposition, and the three-year trend.
2. Service and merchandise revenue per call, by disposition.
3. Merchandise margin: merchandise revenue minus merchandise cost, divided by merchandise revenue.
4. Payroll, including a market wage for the owner’s role, as a share of service and merchandise revenue.
5. SDE or adjusted EBITDA margin on the same revenue base.
6. Debt-service coverage: EBITDA divided by projected annual debt service.

The first, second, and fifth ratios feed the Four-Number Funeral Home Valuation Screen. The sixth matters to lenders: SBA SOP 50 10 8.1 measures historical coverage as EBITDA divided by post-transaction debt service, with a 1.25 minimum for an initial acquisition. Our guide to SBA loans for funeral homes shows how that ratio caps the price you can finance.

What P&L patterns should make a buyer slow down?

Slow down when revenue grows while calls fall, when merchandise margin jumps in the year before a sale, or when preneed income is recognized inconsistently. Each can be innocent, but each needs a written explanation.

Also watch for payroll that drops as the owner takes over more work, repairs deferred until after closing, and other income that comes from one-time trust distributions. Compare the P&L with the call reports in your due diligence workstreams, and test the call base itself with our guide to underwriting call volume.