How to use recency, frequency, and monetary value to rank customers and drive better results.
By now, many online retailers should be familiar with the abbreviation "RFM," which stands for recency, frequency, and monetary value. For a refresher, here's my explanation from 2002.
Over the past several columns, I've examined conversion rate basics. This week, we continue our study of the basics with an updated look at RFM.
Recency represents the number of days since the customer last completed the action you're profiling. Frequency represents the number of times the customer has completed this action since the first time she completed it. Monetary value represents the total value (usually total sales) the customer created by completing these actions.
The classic RFM model produces scores that rank customers relative to each other for the likelihood that they will repeat the action being profiled. Any action can be profiled: visits, purchases, logins, and so on. High likelihood to repeat an action, providing this action has economic value to the company, means high future value. Low likelihood to repeat means low future value. RFM is that simple.
RFM is a commonsense way of sorting marketing and optimization decisions based on what your visitors actually do and what they spend.
What Can RFM Do for You?
Let me defer that answer to a friend, optimization junkie, and fan of RFM. According to Frank Malsbenden, VP/GM of Vision Retailing, parent company of Shoeline.com:
Getting Started With RFM
Once you grasp RFM fundamentals, you'll be inspired. Once you sort by these criteria, you'll quickly find new and exciting ways to use them, such as:
My one tip when using RFM: don't waste too many resources turning low RFMs into higher ones. It's much more efficient to keep higher RFMs engaged.
If you need a quick immersion in RFM, again I highly suggest "Drilling Down: Turning Customer Data into Profits with a Spreadsheet" by good friend Jim Novo.
Have you learned anything interesting from employing RFM techniques? Let's us know in the comments section what you've found.
Meet Bryan at Search Engine Strategies London February 17-20 at the Business Design Centre in Islington. Don't miss the definitive event for U.K. and European marketers, corporate decision makers, webmasters and search marketing specialists!
Join moderator and ClickZ columnist Jack Aaronson for Dynamic Display Ads: Putting All Your Best Offers on Display to Double ROI, Thursday, February 5 at 12 p.m. EST. This Webcast will show you how dynamic display ads stream live offers from your Web site to get the right offer to the right customer at the right time.
On the heels of a fantastic event in New York City, ClickZ Live is taking the fun and learning to Toronto, June 23-25. With over 15 years' experience delivering industry-leading events, ClickZ Live offers an action-packed, educationally-focused agenda covering all aspects of digital marketing. Register today!
Bryan Eisenberg is co-founder and chief marketing officer (CMO) of IdealSpot. He is co-author of the Wall Street Journal, Amazon, BusinessWeek, and New York Times best-selling books Call to Action, Waiting For Your Cat to Bark?, and Always Be Testing, and Buyer Legends. Bryan is a keynote speaker and has keynoted conferences globally such as Gultaggen, Shop.org, Direct Marketing Association, MarketingSherpa, Econsultancy, Webcom, the Canadian Marketing Association, and others for the past 10 years. Bryan was named a winner of the Marketing Edge's Rising Stars Awards, recognized by eConsultancy members as one of the top 10 User Experience Gurus, selected as one of the inaugural iMedia Top 25 Marketers, and has been recognized as most influential in PPC, Social Selling, OmniChannel Retail. Bryan serves as an advisory board member of several venture capital backed companies such as Sightly, UserTesting, Monetate, ChatID, Nomi, and BazaarVoice. He works with his co-author and brother Jeffrey Eisenberg. You can find them at BryanEisenberg.com.
Hong Kong, May 5-6, 2015
Gartner Magic Quadrant for Digital Commerce
This Magic Quadrant examines leading digital commerce platforms that enable organizations to build digital commerce sites. These commerce platforms facilitate purchasing transactions over the Web, and support the creation and continuing development of an online relationship with a consumer.
Paid Search in the Mobile Era
Google reports that paid search ads are currently driving 40+ million calls per month. Cost per click is increasing, paid search budgets are growing, and mobile continues to dominate. It's time to revamp old search strategies, reimagine stale best practices, and add new layers data to your analytics.
May 6, 2015
12:00pm ET/9:00am PT