When shouldn't you use RFM analysis

Even though RFM analysis can work on most Shopify store sizes, there are some times when it's too complex or not worth the time to use.

Early in your store

RFM analysis uses your customers past buying behavior to segment them. If your store is new, say within the last 6 months, then RFM might not be worth using yet.

It can still work with a short history but it won't be accurate unless your customers are buying very frequently (e.g. every month).

You'll want to keep running your store and build up a history. Segmenting by AOV or number of orders could be alternative metrics to use for segmenting during that time.

Or turn to another segmenting system like the customer grading that my app uses.

High number of one-time buyers

If you have a high number of one-time buyers (90%+) then there's not much repeat behavior RFM can analyze. It'll pick out your large orders and recent orders but since 90% of customers aren't coming back, you're not going to be able to fully use the advice it gives.

You'll want to work on improving your Repeat Purchase Rate to get more repeat customers, then turn to RFM for a more powerful analysis.

Products that are bought for life

Similarly if you have products that are only bought once for life, RFM can struggle to help. These would be things like software licenses, big capital items (e.g. hot tub), or things with a lifetime replacement warranty.

You'd have the same problems as above. Those rare customers who buy multiple products are most likely gift purchases which are different customer behavior.

You only sell through anonymous platforms

If all of your sales are through anonymous platforms (Amazon) where you can't easily see the customer, RFM will be ineffective.

Sure you can try to combine orders to the same shipping address, but that's likely to group customers who are actually different customers.

Doing RFM without software by hand

Trying to do an RFM analysis by hand without software or even a spreadsheet is going to be trying. It can be useful to learn how it works but even with only 100 orders the calculations can take a long time.

For the vast majority of stores, RFM can work really well to segment customers. If you want to see how it looks in your Shopify store, all accounts in Repeat Customer Insights include an automated RFM analysis.

Eric Davis

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Topics: Rfm Customer analysis

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