Grading your Shopify customers with RFM segmentation

Segmenting your Shopify customers is a great way to figure out who to target with promotions and campaigns.

A store owner had a question about how Repeat Customer Insights is segmenting and grading their customers.

while I love the idea of segmenting customers into groups like A,B,C, this app doesn’t give me context as to why a certain customer is in a specific category. For instance, one of my "A" customers has placed three orders total, with the last one being 2 months ago. What are the parameters for being an "A" customer and how does that compare to the others?

The customer grading is using RFM which stands for Recency, Frequency, Monetary.

  • How recent a purchase was made (Recency)
  • How many purchases have been made (Frequency)
  • How much has been purchased (Monetary)

This is the classic RFM segmenting that has been used by decades in database marketing. It’s simple to understand but can be confusing at first.

Each customer is graded in all three areas from 5 (best) to 1 (worst) relative to your other customers.

So a customer with a Monetary of 5 means that they are in the top 20% of your customers in terms of money spent, a score of 3 would be the middle 20%, etc.

Once a customer is ranked using RFM, they get a final score. For example a score of 435 would mean:

  • 4 recency, their last purchase was in the top 20-40% of all customers.
  • 3 frequency, they have made an average number of purchases. 40-60% of customers have purchased more frequently.
  • 5 monetary, their amount spent puts them in the top 20% of all customers.

Repeat Customer Insights uses these scores to assign a final letter grade (A-F) for each customer to act as a quick visual indicator for the customer. Recency is the most powerful factor so it makes up the majority of the letter grade. This example would probably be a B customer.

Then over time that customer’s score would be adjusted based on their own behavior and other customer behavior.

If you haven’t installed Repeat Customer Insights yet, it’s a simple process to get a detailed look at your customer behavior.

I just added a way to export the analyzed customers to a file so you can even import it into other systems (e.g. Facebook for a custom audience, Excel for some deeper segmentation)

Eric Davis

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