RFM Analysis
Impact
Power to Connect
What is an RFM analysis?
1. A Recency, Frequency, and Monetary analysis scores customers, providing a clear method for
ranking customers in terms of their past behavior.
2. RFM analysis provides a basis for allocating marketing budgets to customer groups in proportion
to their proven value and likely response.
How does an RFM analysis support marketing management?
1. The fundamental premise behind RFM analysis is that past customer behavior is a good
predictor of future behavior. Without linking sales history to a customer list, all the customers
look equal, but they are not. Businesses prosper when they recognize and nurture relationships
with best customers.
2. RFM analysis provides a framework for research designed to identify important market
segments. Given a choice, a business should first target the market segments from which their
best customers come.
What else can you use an RFM analysis for?
1. ‘Welcome’ offers to new customers, featuring products that existing frequent customers have
purchased.
2. ‘Growth’ offers to induce customers in promising market segments but with low RFM scores to
buy more.
3. ‘Reactivation’ offers to draw lapsed customers back into active status. The timing of such
appeals is often supported by additional buyer behavior cycle research.
What are the key concepts involved in developing and presenting a RFM analysis?
1. RFM analysis uses information about customers’ past buying behavior to predict which
customers have the potential to be most valuable to your company in the future. The customers
are divided into quintiles for each RFM parameter, and ranked on a scale of 1-5. Each customer
is then assigned a three-digit score based upon their rankings, with “555” being the best and
“111” being the worst. These scores are then used to create the various customer segments.
What is needed to do a RFM analysis?
1. Historical sales data (including name, address, date, and sale information).
2. RFM scores are calculated at a “point in time” and would need to be recalculated each time the
sales data is refreshed.
What comes after a RFM analysis?
1. By identifying the most valuable customers, RFM analysis allows you to concentrate resources
on customers in proportion to their likely response. At the high end, targeting boosts sales. At
the low end, targeting eliminates waste.
2. RFM analysis allows you to develop and test strategies to move customers from one level of
customer relationship to another and determine the cost/benefit benchmark that justifies the
effort.
612.521.6245
www.ImpactConnects.com
4600 Lyndale Ave. North, Minneapolis MN 55412