RFM customer segmentation, available with the Advanced plan, is a smart customer database segmentation tool.
The acronym RFM stands for Recency, Frequency, and Monetary value. Three criteria for classifying customers in accordance with their purchasing habits.
Several studies have shown that just by taking into account three types of data, you can work out the probability of a future order on your store. More specifically: the more recent the order, the greater the frequency of the orders and the greater the value of the order, the greater the likelihood that your customer will place another order on your store!
The idea is therefore to study these three criteria over a given period (that you can decide according to your business sector) and allocate a score to each of your customers (between 0 and 4 stars), a purchase profile (very regular, regular, cyclical, to retain or losing momentum) and a purchase value (very high to very low).
Here are some actual examples:
- If you have a very regular customer, you can send them emails very frequently. They are one of your best customers, so they will be very happy to hear about your latest products or developments.
- If your customer is cyclical but spends a lot on each purchase, they have a lot of potential. An attractive offer or a discount code can easily result in a new order being placed.
- If a customer is losing momentum and spends little, there is no point in sending them emails every three days. A surprise offer would be a more effective way of attracting them back to your site!
How to set up RFM segmentation on my store?
To activate and set up the RFM customer segmentation on your store, go to Settings (cogwheel) > Store Settings > RFM Customer Segmentation tab.
There are four options you can set up:
1. The calculation period
The first element you will have to specify is the period in respect of which the various calculations will be based. This period should correspond to the pace of consumption of your average customers. It therefore depends on your business sector.
For example:
- 1 month for food
- 3 months for consumables
- 6 months for textiles or high-tech products
- 12 months for seasonal products
2. Recency
You can define this criterion (as well as the other two) according to how important it is for you. In this table, you can specify what, for you, constitutes an excellent customer. Is it a customer that has purchased from you in the last two weeks, or within the last month? You can use default average values but you are of course free to tailor it to your specific requirements.
3. Frequency
The same principle applies as for recency. You need to indicate how significant this criterion is for you. The more frequently the customer purchases from you, the more loyal they are. This criterion can vary enormously according to the type of business carried out. If you sell food products, the number of orders placed by a same customer will naturally be higher than if you sell high-end speakers.
4. Monetary
Again, you can tailor the values to your requirements. If the value of your shopping cart is very high, don’t forget to change the amounts in the table, otherwise the RFM score will necessarily be misleading (all your customers would have a 4 star score).
How to view your customers' RFM scores on your administration?
You will find your customers' RFM scores on their client page directly, 24 hours after activating the tool.
The RFM score (between 0 and 4 stars) will be displayed under the customer’s name. An overview will show the customer’s profile and their RFM purchase total.
On the customer’s page, a tab specific to RFM segmentation will also be generated with a chart to illustrate their score over the various periods of analysis, as well as practical advice relevant to their profile and the total amount of their purchases.
How do I create segments from this information?
The aim here, of course, is to be able to use these different items of information to create effective marketing campaigns!
The RFM score (0 to 4 stars), the RFM purchase profile and the RFM purchase total will therefore become essential filters in your customer segments and will be able to be combined with the others. You can, for example, choose all your regular and very regular customers with a “very significant” average shopping cart (your ambassadors, therefore) and create really effective emailing campaigns!
👉 To find out more about customer segments.
💬 Feel free to contact your Business Coaches should you have any questions!