One of the most popular, and effective, tools to measure and analyze customers

For every marketer there is a goal to better understand your audience and customers. One of the most popular, and effective, tools to measure and analyze customers is RFM modeling. RFM stands for Recency, Frequency, Monetary Value. By combining these values, marketers are able to determine and allocate efforts to reach each customer segment.

Let’s first review the composition of each letter in the RFM model.

Recency

This metric is utilized to determine the recency of the last order made by a customer. Each customer is placed into a range of time based on last purchase date that is unique to each marketer’s business and buying cycle. Typically, there are five (5) ranges within which customers are placed.

Customers should be constantly rotating through the ranges if they are buying more than once.

Frequency

One of the critical points of marketing is understanding how often a customer buys from you. Depending on your products, the buying cycle could be very long, which means the customer buys less frequently. On the other hand, if you sell consumable products, the ranges for frequency of purchases should be much greater.

If we look at recency and frequency mapped out into a chart together, it would look something like this:

In reviewing this chart, Recency ranges of six (6) months are set along the top based on this example company’s buying cycle. The columns down the left-hand side are representing the Frequency of purchases. Again, the ranges of one (1) purchase are based on the example company’s business model.

Each customer should fit into one of the squares in the chart at an intersection defining how many purchases they’ve made corresponding with their last purchase date. For instance, there are thirteen (13) customers that have bought three (3) items in their lifetime with this company and their last purchase date was between 13 and 18 months ago.

Those customers that have bought only once tend to be either first-time buyers, which means that your marketing efforts should be more aggressive for the 21 people, in this example, that fall into the 0-6 month range.

On the other hand, those one-time buyers that haven’t purchased again for 25+ months, or five (5) buying cycles, those are probably a lost cause. There was something they didn’t like about your products from the start.

The most valuable customers to your business are the 20 people in the 5+ purchases that have last bought in the past 6 months. These are regular buyers that could be advocates of your brand. Very little marketing is needed to keep them buying.

However, it is worthwhile launching a campaign targeted at the most frequent buyers that haven’t bought in a few buying cycles to determine if they’ve phased out of the market for your products or if something you did triggered them to stop buying.

Monetary Value

The third aspect to RFM modeling is the monetary value, or lifetime value, of the customer to your brand. Of those customers that have bought four (4) times, for instance, how many are worth €150 or more? Again, the ranges will be based on your company’s individual price points and average order size (AOS) to place customers into a subsequent value.

The customers that are the most valuable to your business are the ones that rank highly on all three metrics. These are the people that know, trust and love your brand. You can use them to assist your marketing efforts to the customers that score low in each metric, especially first-time buyers.

Each segment has an appropriate and unique marketing plan to approach and attempting to treat all customers the same as each other, or worse, the same as prospects, would be doing your business and loyal customers a disservice. RFM modeling and analysis can help you not only better understand your audience, but also help you construct messaging and strategies to target each customer group.

About the Author

With strategic services experience at a top ESP in the United States and known for getting results for her clients, Kelly brings an in-depth knowledge of online marketing, and specifically, email marketing and how it fits into the overall landscape. In her current role at Apsis, Kelly guides clients to strategically optimize their email marketing campaigns and drive ROI through implementation like RFM modeling.

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