In this article we are going to discuss how you can better understand your customers and personalize your interactions with them at scale using the RFM analysis.

What is the RFM analysis?

The RFM model ranks and categorizes customers based on three essential factors: how recently they made a purchase, how frequently they do so, and how much they spend.

1. Recency: How recently did a customer make a purchase? Customers who have made recent purchases are more valuable than those who haven’t.
2. Frequency: How often does a customer make purchases? Customers making more frequent purchases are more valuable than those who aren’t.
3. Monetary Value: How much money does a customer typically spend? Customers who continually spend more money are more valuable than customers who spend less.

How do you calculate it?

For each metric, assign a value typically 1-5, with 5 being the highest and 1 being the lowest, for each customer relative to other customers. For example if your most frequent customers in a given time frame has purchased from you 10 times then they would be assigned a 5

Based on their rankings you can categorize similar customers in groups such as loyal customers, high spenders, at risk customers etc

4 reasons why you should use the RFM analysis?

1. Better understand your customers

This can help you gain valuable feedback and even cross/upsell your customers 

2. Increase conversions 

Personalized offers are more appealing to customers, improving the likelihood of higher conversion rates and greater spending 

3. Retain more customers 

By identifying and taking action to understand inactive customers, you can take timely action to avoid churning them and keep them coming back for more. 

4. Lowering your costs

RFM analysis helps you allocate your marketing resources efficiently by focusing on the most valuable customer segments, it’s much more efficient retaining customers then acquiring new ones

If you have an online store with ordable/ you will have access to an automated RFM report without having to do the math yourself.

The report automatically segments customers in 7 categories based on their purchasing behavior

More importantly, it’s equipped with other marketing tools that allows you to send targeted promotions and campaigns to each segment 

Have some questions on how to segment your customers, reach out to us