What is RFM Analysis?

RFM Analysis is a powerful tool that enables you to target your customers according to three key dimensions linked to their purchase history:

• Recency - the time that has passed since the customer’s last purchase
• Frequency - how often each of your customers makes a purchase from your store
• Monetary - the amount each of your customers spend on their purchase

RFM Analysis helps you identify at a glance who your best customers are, while also providing insights into how to encourage repeat purchases, thus increasing customer lifetime value and your overall revenue.

RFM Analysis relies on the purchase history of all your customers in order to group them according to recency, frequency, and monetary value criteria.

In theMarketer, we offer two types of RFM Analysis, namely the Simple RFM Analysis, which is available for the Ecommerce plan, and the Advanced RFM Analysis, which is available for the Ecommerce PRO plan.

Simple RFM Analysis

The Simple RFM Analysis is ideal for businesses that are at the beginning of their e-commerce journey. By analyzing the customers’ purchase behavior, the platform generates four basic segments according to recency, frequency, and monetary value criteria. By default, the analysis window is 1 year, but depending on the nature of your business, it can be extended to either 2 or 3 years.

• One-time buyers - these customers have just made their first purchase, but their individual average order value is below the AOV of your website.
• Multiple-time buyers with low AOV - these customers purchase from your shop frequently, but their individual average order value is below the overall AOV of your website.
• One-time buyers with high AOV - these customers have just made their first purchase, and their individual average order value is higher than the overall AOV of your website
• Multiple-time buyers with high AOV - these customers purchase from your shop frequently, and their individual average order value is higher than the overall AOV of your website.

The Simple RFM Analysis focuses more on the frequency and the value of the purchases, as this segmentation approach allows you to focus on key aspects of your business, such as:

• Increasing customer loyalty for high-frequency customers with high AOV
• Increasing customer retention by creating targeted campaigns for one-time buyers
• Increasing the AOV and retention of customers whose individual AOV is below the average AOV of your website.

You can easily create differentiated marketing campaigns for each segment in just a few simple steps. Start by clicking the desired RFM segment, then choose the campaign type you want to send (newsletter, push notification, or SMS), and the campaign will automatically target the specific RFM segment.

Advanced RFM Analysis

The Advanced RFM Analysis is ideal for large e-commerce stores that have a sizeable customer base because it enables them to segment a large dataset into smaller, targeted segments. By analyzing the customers’ purchase behavior, we generate ten segments according to recency, frequency and monetary value. By default, the analysis window is 1 year, but depending on the nature of your business, it can be increased to either 2 or 3 years.

• New users - first time customers, whose most recent order is between 0 - 30 days
• Need attention - customers who have placed only one order in your store, in the last 30 - 180 days.
• Potential loyalist - customers who have placed between 2 and 3 orders, the most recent one in the last 0 - 30 days.
• Promising - customers who have placed between 2 and 3 orders in your store, the most recent one in the last 30 - 90 days.
• Hibernating - customers who have placed between 2 and 3 orders in your store, the most recent one in the last 90 - 270 days.
• Loyal customer - customers who have placed 4+ orders in your store, the most recent one in the last 0 - 180 days.
• Champions - customers who have placed 6+ orders in your store, the most recent one in the last 0 - 30 days.
• At risk - customers who have placed 4+ orders in your store, the most recent one in the last 180 - 365 days.
• Can’t lose them - customers who have placed 6+ orders in your store, the most recent one in the last 270 - 365 days.
• Lost - customers who have placed between 1 and 3 orders in your store, the most recent one in the last 180 - 365 days.

Advanced RFM Analysis gives heavier weight to recency and frequency scores, while monetary value has a lower impact. This way of segmenting your customers base enables you to focus on key aspects of your business, such as:

• Turning your most valuable customers, the Champions, into brand ambassadors.
• Creating re-activation campaigns for customers in RFM segments such as Hibernating and Lost.
• Nurturing customers in the Potential Loyalist and Loyal customers segments, in order to increase their purchase frequency.
• Engaging customers in the New users and Need attention segments in order to encourage them to make another purchase.
• Re-activate past loyal customers from the Can’t lose them and At risk segments, who have a greater potential of becoming Champions again.
• Do qualitative research on your customer base in order to find out what is making your customers churn and how to improve your product assortment to better fit their needs.

All this can be done in just a few simple steps. Start by clicking on the desired RFM segment, then choose the campaign type you want to send, be it a newsletter campaign, push notification or SMS and the campaign will automatically target the specific RFM segment.