CRM Marketing Using the RFM Formula

CRM (Customer Relationship Management) systems work to identify and use information to help you better serve your customers. Use the RFM formula, along with traditional CRM tools, to integrate disparate databases, identify buying trends, and optimize marketing campaigns and increase your customer’s satisfaction.

What is the “RFM” formula (Recency, Frequency, Monetary)?

Recency: How recently a customer bought. By tracking your customers’ purchase history (preferably with a “loyalty” program or discount club) you’ll be better able to anticipate their buying habits and market to them more effectively.

Frequency: How often a customer buys. Use the 20/80 rule for marketing. 20% of your customers bring you 80% of your business. Knowing frequency can help you target these customers and also turn more customers into the 20/80 crowd when leveraged properly.

Monetary: How much a customer spends. This information helps you to categorize your customers into monetary groups (like: frugal spender, average spender, splurging spender, and luxury spender) and gain insight into which products and services to target to which individuals.

Use your data to discern patterns, segment your options, create specialized promotions, refine offers and develop services to increase your sales and expand your customer base.

The easiest way to get the most return on your investment in applying the RFM formula to your marketing campaigns is to discover, target, and reward your most loyal customers.

Why your most loyal customers?

  • They spend more, even in tough economic times, with brands they trust.
  • They cost less (it costs more to acquire a new customer than to sell more to a current customer).
  • They give valuable feedback; they are more emotionally connected to you and wish for your success.

Finally, I would like to share a great 3 part series of articles written by Mark Sakalosky on ClickZ.com which really go into detail of how to perform and analyze your own RFM formula. I’ve included the link to part 3 since it has links to parts 1 and 2: RFM Part 3.

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