Classic Marketing Rules – RFM

Can you answer this (simple?) question:  Who are your best customers?

If so, bravo!  We can follow up with the question “why?” a bit later.  However, it’s amazing how many marketers with repeat customer bases can’t answer that basic question.  And it’s a really important one!  By knowing the value of your customers you can better optimize your communications budget, target prospects who share the traits of your best customers, and vary your messaging to appeal to various segments.

If you need a quick and easy way to value your customers, try this “old school” rule:  RFM.  RFM is an acronym for Recency, Frequency, Monetary Value.  These are the components of a formula that direct marketers have used for decades to measure the value of each customer.  To keep it simple, try this exercise:

  • Recency: This is most recent purchase date. Rank each customer by their most recent purchase date and decile them “i.e. break them into ten equal groups from top to bottom. The 10% most recent buyers get 10 points. The next 10% get 9 points, and so forth.
  • Do the same as above for Frequency (the total number of purchases) and Monetary Value (the total amount of money they have spent with you).
  • Now, add up the scores for each customers and there you have it…your own RFM customer analysis!

Use this to determine who and how often to market to various customer segments.  Dig a little deeper and see why people have a high score.  You will notice that some are driven by high frequency and others by one or two large purchases.  How would you message to each of these customers?  Probably a bit differently.

In sports, coaches are always telling players to “remember the fundamentals.”  Well, business is no different.  Remember RFM, play around with variations, add your own enhancements, and the next time someone asks if you know who your best customers are, give them a big grin and answer: “Abso-****ing-lutely!”

Oh, and check out RFM and more classic rules by downloading “Get Old Schooled” in our Resource Center.

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