5 Reasons To Use RFM Segmentation Today

Customers drive your business forward or backward. They are the reason to produce different products or to offer sales on goods or services. Since customers are the driving force, do you know who they are from demographics, psychographics? Or even down to how often they visit your business and buy your products and services? Utilizing RFM Segmentation can help you understand these concepts for your business.

People looking at their laptop and discussion RFM Segmentation

What is RFM Segmentation?

RFM segmentation is a way to group and rank your customers with three categories: recency, frequency, and monetary. Recency is the timeline of when the customers last purchase was made. This will help to know their current interest. Frequency is how often a customer shops at your store or uses your services. This will help you determine their loyalty to your brand. Monetary is how much money customers are willing to spend when doing business with your company. This will help you understand your current buyers price range.

So why should you use it?

Many companies do not pay enough attention to what their current customers need. There are many aspects to keep track of, from product design, pain points, and pricing needs. RFM segmentation is a tool needed to help make sense of who you customer is.

Phone with graphs about RFM Segmentation

1. Understand the Value of Customers to Your Company

Since the RFM will segment your customers into different categories you will get more of a glimpse into what your customers are expecting and what they are expecting from you. This will also segment them into how much and how often they are willing to spend with your company. This is great information to have and pass on to the company to meet the customers’ needs more fully.

2. Lean What Lifetime Value Each Segment Can Provide

This analysis helps split up when and how much people are willing to spend. When you know what your segment ranges are you will know how long and how often people are willing to spend with your company. This is their lifetime value. To get lifetime value, all the money spent would have to be considered and this analysis will help assess those numbers even further with frequency and recency.

3. Get Ahead of the Competition

Once your customers are split up into different RFM categories, you will be able to calculate other items such as ROI from the segments that you will create. This will give you a great advantage to get ahead of the competition by knowing and answering to your customer’s deeper needs.

4. Know Your Customers

With this segmentation analysis, it is unlike others you will find as it does not look at the demographics or other qualities of you customers. It analyzes the pure data that will show what interest there is in your company from how much people are willing to spend and how often they do it. This insight will help with positioning on pricing and products you decide to manufacture in the future.

5. Understand Your Customer Focus

When you fully understand what customers you have already, you will be better prepared to decide what customers you will focus on in the future to keep the people you have and gain more cusotmers. Different segments will provide unique value to your company and the segments you choose from both this analysis and others will help drive your company forward.

For example, some people will be big spenders for a one-time transaction and others will provide value over their lifetime of using your products. Others can only buy one thing that is of smaller value and not come back. To target each of these areas, depending on what customers you are attracting, you will use a different tactic. The way to know what tactic to use, is to use RFM segmentation.

The best tool to analyze a large amount of data is a spreadsheet. This will assist you in making those hard decisions. A great resource is this spreadsheet that will do your RFM segmentation for you. Just click on the picture below and begin the download of your spreadsheet to wow your company with the knowledge that will be gained.

By: Melissa Monk