As an e-commerce store owner, you know that your customers are the lifeblood of your business. Understanding their behaviour and preferences is crucial to making informed decisions about how to allocate your marketing budget, which products to promote, and how to provide the best customer service.
This is where RFM analysis comes in. RFM stands for Recency, Frequency, and Monetary value, and these metrics are used to analyse customer behaviour and segment customers into different groups. By understanding your customers' behaviour and segmenting them based on RFM analysis, you can make informed decisions about how to market to them and provide the best customer experience possible.
Let's take a closer look at each of the RFM metrics:
Recency: This metric measures how recently a customer has made a purchase. Customers who have made a purchase recently are more likely to make additional purchases in the near future, so it's important to keep them engaged with your brand.
Frequency: This metric measures how often a customer makes a purchase. Customers who make frequent purchases are more valuable to your business because they generate more revenue over time.
Monetary value: This metric measures how much a customer have spent with your brand. Customers who spend more are more valuable to your business because they generate more revenue per transaction.
By analysing these three metrics, you can segment your customers into different groups and tailor your marketing efforts accordingly. Here are the customer segments and the actions you can take based on their behaviour:
RFM Segments
Champions: These are your most valuable customers who have made recent purchases and spend a lot of money with your business. You can reward them with exclusive discounts, ask for reviews, and engage with them to keep them loyal.
Loyal Customers: These customers make frequent purchases and are loyal to your brand. You can offer them higher value products, ask for reviews, and provide referrals to encourage them to spread the word about your business.
Promising: These customers have made recent purchases but haven't reached the Champion or Loyal Customer status yet. You can offer them subscription and loyalty programs, provide recommendations, and send gifts or personalised cards to build a one-on-one relationship with them.
New Customers: These customers have recently made their first purchase. You can provide them with post-sale support.
Should Not Loose: These customers made large and often purchases but have not purchased in a long time.
Sleepers: These customers spent good money but have not purchased in a long time.
Lost: Lowest RFM scores, bought a small amount a long time ago.
Warm Leads: These customers bought once or twice fairly recently buy have not spent much.
Cold Leads: Customer at risk of being Lost, with below average RFM scores.