What is RFM Database Marketing?

RFM Database Marketing is a methodology which segments your customers based on Recency (when they last purchased), Frequency (how many times they have purchased), and Monetary (how much they have spent).

Recency, Frequency, Monetary

Would you spend the same amount of money marketing on a customer who has spent $10 with you 3 years ago as you would a customer who spends $100 with you every month? How would your marketing strategy differ between a customer who spends $100 dollars with you every month vs. a customer who spent $1,000 once last year?

Spend your money on the winners.

RFM Database Marketing allows you to identify more precisely how your money is spent to attract and retain your customers solely based on their spending habits. It is a beautiful and effective concept and a win-win for both you and the customer.

How does RFM Database Marketing work?

You probably have a database with a record of every transaction. These records can be broken down into segments according to defined parameters set for Recency, Frequency, and Monetary.

Here is an example of a system of 5 defined parameters for Recency, Frequency, and Monetary.

Recency

Recency 1 – Under 1 Week
Recency 2 – Over 1 week, Under 1 Month
Recency 3 – Over 1 Month, Under 6 Months
Recency 4 – Over 6 Months, Under 1 Year
Recency 5 – Over 1 year, Less than 2 years

Frequency

Frequency 1 – 1-2 Transaction
Frequency 2 – 3-5 Transactions
Frequency 3 – 6-10 Transactions
Frequency 4 – 11-20 Transactions
Frequency 5 – 20+ Transactions

Monetary

Monetary 1 – Under $9.99
Monetary 2 – Between $10.00 and $99.99
Monetary 3 – Between $100.00 and $199.99
Monetary 4 – Between $200 and $499.99
Monetary 5 – Above $500

Once we have these parameters set, we can ask the system to retrieve a list of customers according to a RFM sequence. Let’s do some example together. Let’s ask the system to retrieve R1, F2, M4:

Recency 1 2 3 4 5
Frequency 1 2 3 4 5
Monetary 1 2 3 4 5

These particular customers has all bought from us within the last week, have concluded 2-5 transactions, and spend between $200 and $499.99.

Let’s do another example. Let’s ask the system to retrieve R5, F1, M1:

Recency 1 2 3 4 5
Frequency 1 2 3 4 5
Monetary 1 2 3 4 5

These particular customers have all bought from us over a year ago, have concluded 1-2 transactions, and spent under $9.99. How much money are you wiling to spend to get this customer to come back and do business with you? Nothing! 

Using the chart, go through some exercises yourself and make some assumptions about the customer and the tools and investments you would make to attract them.

Recency 1 2 3 4 5
Frequency 1 2 3 4 5
Monetary 1 2 3 4 5

Arrested Relations can help you develop and execute a RFM Database Marketing campaign. Contact us for more information.