I was reading an article by Shopify about using email marketing, lifecycle automation, and RFM.
There's a lot of good information in it except they slightly missed the mark with RFM:
Recency is the number of days since a subscriber’s or customer’s last purchase. An R0 purchased today. An R365 purchased a year ago.
Frequency is the total number of times a subscriber or customer has purchased. An F0 has never ordered. An F10 has ordered 10 times.
Monetary value is a customer’s total spend—the sum of all orders.
Using their scoring method you'll end up with customers like this:
- "187", 4, "$234.56"
- "1", 2, "$87.12"
- "145", 7, "$117.56"
While useful to see the data behind the scenes, that misses much of the power of RFM:
The ability of RFM to relate your customers against themselves
If they used the standard RFM definition, you'd see something like this:
- 3, 4, 5
- 5, 2, 3
- 3, 5, 1
Now bring in the RFM scorecard (which is always consistent from business to business) and you get a story for each customer and your customer base as a whole.
- Average ordering time, probably going to order soon. Strong repeat customer. Very high spender. VIP?
- Just ordered. New repeat customer. Average spending. Average customer.
- Average ordering time, probably going to order soon. Strong repeat customer. Very low spender. Discount buyer?
A customer segmentation system that is consistent and standardized like RFM is much easier to operate than a system that requires you to think and evaluate your segments every time you use it. And using a tool like Repeat Customer Insights can make it effortless to build the segments.
Eric Davis
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