RFM stands for recency, frequency and monetary value. The RFM model is based on three key factors:  

1. how recently a customer has made a purchase from a brand;
2. how frequently he has engaged with a brand; 
3. how much money he has spent on its products and services.

With RFM analysis, marketers increase their revenue by targeting specific groups of existing customers with messages and offers that are more likely to be appropriate based on data for a specific set of behaviors. RFM analysis has a number of benefits for your business including increased response rate, customer retention, customer satisfaction and increased sales.


In this section: 


The RFM analysis tool, part of the CloudCart Marketing Suite is enabled only for Enterprise- and Enterprise Plus-level merchants. 


This functionality is located on the Marketing Suite dashboard and divides the customer base into 16 different groups, as shown below. The diagram includes only customers who have made at least one purchase. 

 

The 'recency' factor is plotted horizontally, the 'frequency' - vertically and 'the monetary value' - diagonally. Based on these three metrics, complicated calculations are made and based on them, depending on the selected period, the different groups are formed. 


All groups are colored differently to organize and visualize them better. The groups with good indicators are in blue-green color and those in yellow-orange refer to segments that tend not to perform well.


Characteristics of individual groups

Churned customers

  • Churned - in the lower left corner is located the group of customers with the lowest indicators, colored orange. Most users will be in this group. It includes customers who have placed only one order in the past but have not returned since.  


  • Churned Loyal - the group is colored light orange and sits right above the Churned one.  It includes people who have made purchases in the past within the selected period, in this case, in the last 90 days. They have not made any purchases recently, but they used to be loyal. Knowing who these customers are is good for making the necessary efforts to win them back. 


  • Churned Loyal High-spender - this group sits above Churned Loyal and is colored light orange. Customers in it have made purchases in the past, they have not only been loyal at the beginning of the period but have spent a considerable amount - more than the regular consumer. But they have bought nothing recently, and you cannot expect orders from them if you do not make some effort to reengage them.


  • Churned High-spender - the group is positioned to the right of Churned on the diagram and has a light orange background. Customers in this group are not loyal, shopped sporadically in the past but spent a lot. 


To win back churned customers, focus your efforts first on Churned Loyal High-spenders, then on Churned High-spenders and finally on Churned Loyals. The Churned group does not have serious potential to restore customer interest, as they have made only one purchase, and a long time ago. 



The period you set for RFM analysis from the Marketing > Campaigns > Subscribers > Settings    menu needs to be tailored to your market niche. For cosmetics, for example, the appropriate period is between 3 and 6 months, for groceries - 60 days, and for electronics - 360 days.  After changing the period from the respective field you need to wait at least 24 hours to receive up-to-date statistical data.


New customers

  • New - this group is colored yellow and includes customers who have recently made purchases but have ordered nothing in the past. 


  • New High-spender - the group is colored yellow. It consists of customers who have shopped recently and have spent more than the average order value. It is worth investing effort to make these customers loyal.


Potential customers

  • Potential - the group is colored purple. It includes customers who were new until recently but have made more orders and have the potential to become Champs, Active Loyals or Loyals. You need to focus your efforts on this group. 


  • Potential High-spender - the group is purple and consists of customers who have not only made more orders than a new customer but have spent more than the average order value. Customers in this group have the potential to become Champs, Active Loyal High-spenders or Loyal High-spenders. 


  • Active Potential - the group is colored purple. Here are included customers with potential who have recently made an order - in the last few days. They can become Champions, Active Loyals or Loyals. 


Occasional customers

  • Occasional - the group has a pink background. The customers in it make orders from time to time, not constantly unlike loyal customers who shop all the time. Consumers in this group do not feel engaged with your brand and have little chance to become loyal customers, so investing your time and money in groups with higher potential is better.  


  • Occasional High-spender - the group is pink. It consists of customers who purchase from time to time and spend above the average order value. Consumers in this group do not feel engaged with your brand and have little chance to become loyal customers, so investing your time and money in groups with higher potential is better. 


Loyal customers

  • Loyal - the group is colored green. As its name suggests, it includes the most loyal customers who have proven over time that they will keep making purchases in your store. Because they have not shopped in the last few days, however, they are in a different group than Active Loyal customers.  


  • Loyal High-spender - the group is colored green. These customers are not just loyal, they spend above the average order value in your online store. Your business relies on such customers, and you must be careful not to lose them. 


Active Loyal customers

  • Active Loyal - the group is light blue. Customers here have all the characteristics of loyal customers but have recently made orders and are therefore also considered active.  


  • Active Loyal High-spender - the group is light blue. These customers are loyal, they have shopped in the last few days and have spent a considerable amount - above the average order value. They would respond favorably if you offered them your new products. 


Champions

  • Champ - the group is colored blue and is located at the top right of the diagram. These are the dream customers, they are loyal, spend a lot and are active - they shop constantly. That is why you need to be especially careful with them and reward them through loyalty programs, for example. 


Statistics

On the diagram, information about each group is displayed. 

It includes:

  • how many subscribers there are in a group. If there are none, this will be marked with a dash. 
  • the average turnover spent by a given customer from a specific group.

If you click on any of the groups, a list containing the subscribers in that particular group will appear, for example, for the Churned group the following will visualize: 

Label in the Subscriber section

Navigate to the Marketing > Campaigns > Subscribers section. Below the name of each subscriber, there is a label that indicates to which of the 16 groups he belongs: 

Creating segments 

You can create segments based on these groups. Let's say you want to only work with Champions, Active Loyals and Active Loyal High-spenders. 

1. Create a segment by going to Marketing > Campaigns > Segments and pressing the Add segment button. 

2. In the window that opens, click Add condition and from the drop-down menu, select RFM, then use the 'Is' operator and select the Champ, Active Loyal and Active Loyal High-spender values. 

3. Press Save, and your segment is ready. 


The RFM analysis tool of the CloudCart Marketing Suite will help you plan and implement more effective marketing strategies that lead to higher profits.