Did you notice that your best customers are leaving?
An RFM Analysis Report can group all your customers into segments that can help you better understand their behaviour.
But what is ‘RFM Analysis’? 🤔
RFM stands for the three dimensions:
- Recency – How recently did your customer purchase?
- Frequency – How often do they purchase?
- Monetary Value – How much do they spend?
Looking at all of these key factors customers can be awarded scores and grouped accordingly. Although there are a few ways you can calculate the scores for customers, we are looking to group them by characteristics. This helps us to understand where in the ‘customer lifecycle' they are and how important they may be to you.
ACTION! The main reason you may want to know this is to take action based on the information. Below I have grouped together 10 types
So what are the groupings, what do they mean and what actions could I take anyway?
Below is a list of common groupings used in customer RFM analysis with a brief explanation and some ideas to think about possible actions for customers in these groups. This is a basic breakdown and depending on a business's requirements groupings can be done differently and are often affected by the monetary value.
Explanation: These are your biggest fans - the volunteer cheerleaders of your business! They buy often and regularly. It can be good to analyse the monetary amounts to focus even more on your top customers.
Actions: Maybe start with a big thank you! How about asking what you do well and how could you make it even better? Send them a gift or even better a handwritten note (or both!). These are definitely ones to ask for case studies, testimonials and of course reviews!
💪 Loyal Customers
Explanation: While not champions this segment of customers is what every successful business needs, loyal customers who buy on a regular basis and do not appear to be leaving any time soon. Thank goodness!
Action: You don’t want to lose these clients as they are good solid repeat customers. When looking at the ‘cost of acquisition’ of a new customer it could probably be worth investing in this group to keep them happy. Also, they are close to being Champions so what could you do to get them to the next level.
🤝 Potential Loyalists
Explanation: These were probably new customers just a few months ago but are now already showing signs of being regular customers.
Action: Hopefully some of your existing marketing is already helping here but we now have inertia so a great time to cement a solid relationship. Lots to learn from this group about what they would like. And how would you know what they would like? Guess what? Ask them!
🎉 New Customers
Explanation: Aah... what we all love... a new customer. These will have started purchasing recently but not yet scoring high on the frequency.
Action: Acquiring new customers often takes work so now you have them what are you going to do with them? How are they going to become loyal customers and even referrers? Do you have offers, vouchers, upsells or referral schemes? Here is a whole segment waiting to become the next loyal and champion customers. So what are you waiting for?
Explanation: Often new customers showing early signs of regular purchases.
Action: Cementing the relationship at this early stage could really help create more loyal customers.
🔍 Needs Attention
Explanation: Oh dear and it started so well! This group is pretty average in recency and frequency of ordering so may be a great place to look for sales growth.
Action: Looking at these accounts could show up some potential for growth or just slowing any decline. Every business is different and it would be good to understand your customers in the middle. Maybe a customer account review meeting might help?
🥱About To Sleep
Explanation:The statistics are telling us that this group used to purchase but if you're not careful are slipping towards the land of the ex-customer.
Action: Be good to understand if this is usual customer behaviour for those in this group or whether there is a problem that needs dealing with. Maybe talk to them before it get's worse!
Explanation: I don’t think many of us want hibernating clients but if you are in a seasonal business or some of your customers buy seasonally this may be expected.
Action: Be good to understand if this is usual customer behaviour for these in this group or whether there is a problem that needs dealing with.
Explanation: Oh no, only a few months ago these customers could have been in groups way up this page but not now! They could have been regular customers buying often but they have not been around these parts for some time as their recency score shows.
Action: Now is the time to look at how much these customers were spending and decide how much action you can take. Can you call some of them and understand what happened? Maybe lots to learn here, not least whether they are now spending their money elsewhere and what would it take to get them back.
🚨 Don't Lose Them!
Explanation: Some of these could have been your champions but now they are slipping towards the grim reaper. It’s starting to look pretty terminal! They have a very high frequency score but very low indeed on the recency-ometer. Did you notice they left?
Action: There is no choice send in the emergency services. Do everything you can to understand how such a great customer has slipped away. If nothing else you can try and learn something to reduce the chances of it happening again.
Explanation: These customers score low on all three metrics. OK they have gone!
Action: They are dead to you (not literally) so send flowers if you really want to or try some re-engagement or re-marketing.
I hope you have found this article useful and most importantly it inspires action. Comment below with any actions you would take for any of these groups.
To learn more about how sales reporting could help your business why not contact us.