RFM Analysis to Improve Business Profit and Investment Decision

lipkarlock Sunday, June 14, 2020

RFM (Recency, Frequency and Monetary) Analysis is a marketing analysis technique that helps collect information out of CRM (Customer Relationship Management) Data.

Definition of RFM:

Recency - the date of the latest purchase
Frequency - how often the customer makes purchases
Monetary value - the total value of all a customer’s purchases

Obviously, the most recent purchase is good. It means that the customer is active.

High frequency is good. The more frequent the customer buy, is better. It means they have a good experience and are quite loyal.

And the higher amount the customer spends is better. It means that the trust level is high.

And we can differentiate high spenders and low spenders by looking at the amount they spend.

How to Use RFM Analysis to Increase Customer Engagement

Some companies use RFM to do marketing to the highest potential customer.

It can also used to reduced churn rate.

Many e-commerce companies use RFM to engage customers.

Company can define the RFM segment and do a personalized marketing activities to each group.

Studies have shown that personalized marketing is more effective in increasing purchase amount and frequency.

Use RFM Analysis for Investment Decision

Before you start to invest in a particular company, you can analyze the RFM score of their customers.

At the end of the day, a good RFM score will give you some hint of the economic moat of the company or business.

For example, if you see that many Apple customers continue to buy more and more Apple products, and spend more and more money on Apple products, you can almost be sure that this is good business.

RFM Analysis is one of the many big data analytics methods that many retailers are using to understand their customers better.

Companies that employ data analytics as part of their marketing and business process will definetely be ahead of the others.