Sanderson RFM has been an invaluable asset to our business. We have been able to segment our data based on the results. We have also made significant cost savings by reducing the number of catalogues mailed."
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Increase ROI by targeting your most profitable customers
The Sanderson RFM (Recency, Frequency, Monetary Value) Model
Your most profitable customers are those who have purchased from you most recently, ordered most frequently and spent more monetarily. But how do you identify who they are and maximise their potential?
What is RFM analysis and how can it be used?
RFM is a marketing technique that analyses the recency, frequency and monetary value of your customers to predict how likely they are to buy again. By identifying the potential value of each of your customers you can devise targeted marketing initiatives to increase revenues from the different sectors within your customer base.
Sanderson RFM will help you to:
• Increase revenues by mailing your most profitable customers
• Create targeted campaigns
• Reduce mailing costs
• Evaluate new data sources
• Define programs to activate lapsed customers
The three main elements of Sanderson RFM are:
Recency
Recency is the number of days since a customer last placed an order. It is the most important predictor of future customer buying behaviour. The lower the number of days since a customer last bought from you the higher the likelihood of thembuying from you again. Their experience with your company is still fresh and there is less chance of them switching to a competitor.
Frequency
Frequency is the number of times a customer has placed an order with you within a specific time period. The higher the frequency the more likely it is that the customer will buy again. It also indicates that they are reasonably happy with the products and services of your company and wish to remain loyal.
Monetary Value
Monetary Value is the amount of money the customer has spent during the analysis period. These customers are most likely to spend more with you next time.
So how do you determine who will spend
The RFM scoring procedures allows bands to be set up within the three different categories, recency, frequency and monetary value. These bands are user definable. Taking a time frame, scores can be allocated against the last order placed, the number of orders placed and the average order size. These scores then need to be added together to determine the value of the customer. The higher the score the more profitable the customer is likely to be now and in the future.
RFM in action
Field & Trek have successfully used Sanderson RFM to increase ROI
Field & Trek learnt the value of using RFM to analyse their customer data many years ago. They originally adopted what they describe as a standard textbook approach to help them reduce the cost of mailings whilst increasing sales volume.
The information, which was provided by the IT department, allowed the business to focus attention on their most susceptible customers and as a result benefited significantly from increased sales performance. However the methods used involved an off-line process and as such were both time consuming and resource hungry.
In adopting the Sanderson RFM module they were able to overcome these issues by automating the process and simplifying the methods whilst applying greater flexibility to the scoring mechanism to improve their ability to analyse customer data. This has allowed them to mail their core customers more often without increasing the overall spend on catalogue production.
Kris Bezdyek, Director of Information & Systems at Field & Trek said:
“Sanderson RFM has been an invaluable asset to our business. We have been able to segment our data based on the results. We have also made significant cost savings by reducing the number of catalogues mailed.”
If you would like to know more about the merits of using RFM in your business email jason.colbridge@sanderson.com or grenville.vincent@sanderson.com.
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