3 classic customer segments you should focus on

As you might have noticed already, there are hundreds of ways to segment your customers. It all depends on what data you have and what you want to do with them.

That’s also a problem though.

With so many ways to segment your customers, it becomes difficult to know which ones are actually useful.

I mean, you could segment them based on what type of mobile phone they have and their dress size, but what business goal will that actually accomplish?

This gets even harder in the more advanced segments you try to create. In the last lesson you might have seen how difficult it was to combine two simple segments, Recency and Frequency.

In an ideal world you could find a business need for a segment and easily create it to have your answer in minutes.

Then you wouldn’t have to spend any time comparing or creating segments, you could just use them.

One way to get closer to this ideal comes from a piece of business advice called the Pareto Principle. Or the 80/20 rule.

Applied here, this means that you’re going to find a handful of powerful segments that will give you 80% of the benefits your store needs. Then you can ignore the other hundreds of segments for now.

You’ve been learning about one of the more powerful segments that’s been in use for decades in commerce of all types.

The RFM segment.

It stands for Recency, Frequency, and Monetary.

Recency and Frequency you already met in past articles. I’ll quickly describe Monetary and then show you how to combine these three into a killer combo segment.

Your Monetary segment is just the customers who have paid you the most money over their lifetime. That’s it.

(In Shopify you can see this segment by sorting your Customers by Total Spent, which also happens to be their LTV)

Now you know three simple metrics. The true power comes from combining the three together.

Eric Davis

P.S. If you’re curious about an example of the RFM segment in action, I’m about to introduce you to my Shopify app called Repeat Customer Insights that automatically does your RFM segmenting for you.

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