How to Make RFM (Recency Frequency Monetary Value Analysis) Work Better

RFM (recency, frequency, monetary value) is a staple in multichannel marketers’ analytics tools. It has been around for decades because it works. And, when something works, little is done to change it.

But, what if you could make it work even better by adding information? When the RFM methodology was created, we didn’t have sophisticated data management systems or user-friendly analytic tools. We do, now. Let’s use them to improve the return on our marketing campaigns.

Start with the recency factor. Traditionally, a customer who has purchased within the last 30 days is more likely to purchase again. This led to the creation of hot-line names and increased marketing to these customers. Not all hot-line customers are created equal. Some are seasonal buyers who only purchase at certain times. Repeated marketing attempts to these folks are wasteful. Look at their behavior and market when they are most likely to buy.

Frequency is more important today than ever before because of hit-and-run buyers. Continuing to market to customers who bought once, never to buy again, is simply throwing money away. The Internet opens the world to your company and brings people that only want one item. They aren’t your target market and won’t contribute to your long term success. They will reduce your profitability significantly if you don’t identify them early and change your marketing accordingly.

Monetary value by itself doesn’t mean much. But, when you combine it with recency, frequency, behavior, and costs, it helps you identify your best customers. There may be some surprises hidden in your data. Multichannel buyers probably won’t be your best customers. You won’t know for sure, if you don’t measure your customer analytics.

Consider origin channel when you review your customers. You will find that some channels attract better customers than others do. Your job as a marketing guru is to find the best ways to attract and keep top-notch customers. To do this well, you have to use all of your resources and tools.

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