RFM Customer Segmentation
Analyze and predict future revenue in your customer base and create cross-sell, up-sell and reactivation campaigns to increase customer retention.
How recently did your customers purchase your products?
How often did they buy from you?
How much have they spent?
An easy way to up your targeting game
Simply put, you just assign to customers values
for each of the 3 dimensions (recency, frequency and monetary)
depending on their past purchases' character. It results in
creating a matrix of different customer segments that are then
easier to understand and target.
The biggest advantage of RFM segmentation is that it allows you to divide your customers into relevant clusters based on a qualitative analysis.
Quick introduction to RFM
To begin with, you should yourself decide how precise your targeting should be. You can set your ranking scale to any value, however common practice is to use either 1-3, 1-4 or 1-5 range.
Following the range sets you can see on the right, each customer will land in one of 64 groups (4x4x4). Your best customers will be in 4-4-4 group, while your least valuable clients in 1-1-1 group.
If you don't want things to get overcomplicated it's best to start with just few groups you'll be targeting. Below you'll find few examples you may want to work with first.
1 - made purchase long ago
4 - made purchase very recently
1 - made one purchase
4 - made many purchases
1 - spent small amount of money
4 - spent very much
Encourage them to promote your brand and give them the attention and bonuses they deserve.
Try upselling and engaging them to turn them into best customers. Ask them for reviews.
You can offer them loyalty programs and ask to leave reviews. Cross-sell relevant products.
New, spending much
Try to keep in touch with them and provide with best customer service to make them come back. You can try to cross-sell relevant products.
Try to win their attention with limited time offers as well as price incentives.
Retain at any cost
Try to reactivate them by sending personal emails, limited time offers or new products related to their previous purchases.
Choose your approach
You can carry out RFM segmentation in two ways.
The first one is to base your calculations on aggregated values,
whereas the second on average ones.
1. Aggregated values
New purchases can make your customers only more valuable in respect of RFM analysis. It allows for easy understanding of your results.
Time since last purchase
Total number of purchases
Aggregated value of all purchases
Time since last purchase
Average time between purchases
Average value of all purchases
2. Average values
New purchases can make your customers either more or less valuable in respect of RFM analysis. It may make your results more complex to grasp.
How UserEngage makes it possible
Using our software you've got all you need for implementing RFM segmentation.