How RFM is used by the Customer Grid to segment customers into behavior groups

A Repeat Customer Insights customer was asking how the app creates the 2-D customer grid and the customer segments.

The app uses RFM to score each customer from 1 to 5 across three different criteria: Recency, Frequency, and Monetary.

The Customer Grid takes two of each of those criteria and lays them out in a grid. Then using each of the 1 to 5 scores, it positions each customer in one area of the grid.

For example, it might take Recency and Monetary to show the segments that relate to how often a customer orders and how much they've spent over their lifetime. If a customer has a 3 score in both of those criteria, it'll be right in the middle. It they have a 1 Recency and a 5 Monetary, they'll be in the bottom row (Recency = 1) and the right-most column (Monetary = 5).

Many areas of the grid have similar behavior so they get combined into one named behavior group. For example, Loyal customers can have a range of Recency and Frequency scores, Potential Loyal customers do too but they order less frequently. That's done to simplify and reduce the number of segments you have to work with, as RFM creates 125 unique segments automatically versus 30ish from the Customer Grids.

You can think of the Customer Grids as a visual version of RFM segmenting. It's just as powerful at self-adjusting but can be easier to understand even if you're new to customer segmenting.

Every account in Repeat Customer Insights includes the customer segmenting, Customer Grids, and the RFM analysis.

Eric Davis

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Topics: Customer segmenting

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