RFM analysis
RFM analysis (Recency, Frequency, Monetary) is a method of evaluating and segmenting customers based on their behavior. Here's how it works:
1. Recency -is a metric that reflects how long ago a customer made their last purchase from you. The closer the last purchase, the more points are awarded for this metric.
2. Frequency - is a metric that reflects how often a customer buys something from you. The more often a customer makes a purchase, the more points are awarded for this indicator.
3. Monetary - is a metric that reflects the total amount of money a customer has spent with you over a certain period of time. The more the client spends, the more points are awarded for this indicator.
Once each customer has been scored on each of these parameters, they can be segmented based on the combination of these scores (you can see an example of the combination of scores and the segment names associated with them in the table “RFM Segments”). For example, customers who have recently made large purchases and make them frequently would be categorized as the most valuable segment.
RFM-analysis is available only when tracking (activity tracking) is connected on the website
In enKod RFM-analysis can be found in the section Reports ➔ RFM analysis.
RFM-analysis is a method of segmenting customers based on metrics:
- R - Recency - how long ago their last purchases were: it reflects the time since the customer's last purchase. The closer this value is to the current moment, the more active the client is.
- F - Frequency - frequency of purchases: shows how often the customer makes purchases. The more often a customer makes purchases, the more valuable they are to the business.
- M - Monetary - total amount of money spent (minus the amount of returns): reflects the total amount of money the customer has spent on all his purchases in the company over time. The more a customer spends, the more valuable he is to the business
On the RFM analysis page you can track:
- dates of the last and next conversion
- the number of contacts who have made at least 1 order and the total number of contacts in the database
- amount of orders and average cheque
- RFM-segments and the number of contacts in them (as well as segmenting contacts by RFM for further communications)
- metric boundaries used to allocate contacts to RFM-segments
RFM Analysis Settings
To configure the boundaries of the RFM group indicators, go to Actions → Customize the report
Recalculation frequency
You can customize how often the report should be recalculated:
- once a day
- once every 7 days
- once every 14 days
- once every 30 days
The rule “the more often the better” does not work in this case. The required frequency of RFM-analysis depends very much on the scale of business. The larger the business or the greater the frequency of orders - the more often you need to recalculate, and vice versa (for a small number of transactions, frequent recalculation will make the statistics irrelevant).
Segment boundary settings
We always recommend customizing the RFM metrics boundaries specifically for your business, rather than leaving the default values.
The reason for this is that consumer behavior will be unique for each individual business. For example, sellers of cars and sellers of handkerchiefs will have significantly different boundaries for all RFM metrics:
- Recency of purchase - the same customer may change handkerchiefs several times a month, while they may not decide to buy a new car until several years later.
- Frequency - we can consider the threshold of high order frequency for cars to be a number many times smaller (e.g., 2) than the threshold of high purchase frequency for handkerchiefs (e.g., 100).
- Monetary (money) - the total amount spent on buying a machine is hundreds of times more than on buying handkerchiefs.
Two businesses should never be measured by the same boundaries, as this will cause distortions in the definition of RFM segments. For example, an objectively loyal customer may be misclassified as a sleeper.
Default Metric Values:
| Metrics | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| Recency, days | 20+ | 15-19 | 10-14 | 5-9 | 0-4 |
| Frequency, orders | 1-2 | 3-4 | 5-6 | 7-8 | 9+ |
| Monetary, amount, ₽ (currency is determined from the settings in your account) | 1-499 | 500-999 | 1000-2999 | 3000-4999 | 5000+ |
• The values specified in the boundaries are counted inclusively
• After saving the changes to the boundary settings, the report recalculation will automatically start, during which the “Customize the report” button will be temporarily unavailable
RFM-groups
Combinations of metrics R (1 to 5), F (1 to 5), M (1 to 5) are folded into RFM groups (e.g. 555 for R5-F5-M5, maximum number of RFM-groups is 125). Each of these groups corresponds to a specific segment: champions, sleepers, etc. You can read more about the segments below.
Features of RFM-calculation
RFM-analysis involves contacts who:
- uploaded to enKod database
- made at least 1 order during the entire period
The number of participants is displayed on the RFM analysis page in the “Completed at least 1 order” tile. The numbers in it are frozen at the end of the last recalculation, even if during the time before the next recalculation new orders were made or the size of the database changed.
Recalculation schedule:
The recalculation happens automatically once every 2 weeks at 00:00 according to the schedule you selected in the Settings ➔ Account time zone.
If necessary, you can trigger a forced recalculation: To do this, go to Reports ➔ RFM analysis click the button Actions ➔ Recalculate. On the same page, you will be able to track the progress of the recalculation and/or abort the recalculation by clicking the Stop button. In this case you will see the statistics before the recalculation starts.
On the RFM analysis page in the corresponding tile, you can see the date and time of the last and next scheduled recalculations. Forced recalculations do not affect the schedule of scheduled recalculations.
Accounting for order amounts
The Order Amount tile on the RFM-analysis page displays:
- order amount less returns
- average chequecalculated as the sum of all orders / number of orders, excluding returns
Numbers are frozen at the end of the last recalculation, even if new orders were placed during the time until the next recalculation.
RFM Segments
When recalculating RFM, your contacts fall into one of 10 segments based on combinations of RFM groups (125 in total):
| Segment Name | Segment Description | RFM groups |
|---|---|---|
| Champions | Your best loyal customers who are ready to order on a regular basis | 555, 554, 544, 545, 454, 455, 445 |
| Loyal | Active engaged customers who periodically buy in varying amounts of money | 543, 444, 435, 355, 354, 345, 344, 335 |
| Potentially loyal | Recent customers who have spent a good amount of money | 553, 551, 552, 541, 542, 533, 532, 531, 452, 451, 442, 441, 431, 453, 433, 432, 423, 353, 352, 351, 342, 341, 333, 323 |
| Newcomers | Made their first order recently | 512, 511, 422, 421 412, 411, 311 |
| Perspective | Have bought frequently and for a good amount of money, but last purchase was made a long time ago. | 525, 524, 523, 522, 521, 515, 514, 513, 425,424, 413,414,415, 315, 314, 313 |
| Requires attention | Average in frequency and amount of orders, but probably bought a long time ago | 535, 534, 443, 434, 343, 334, 325, 324 |
| Soon to fall asleep | The length of time, frequency and order amounts are below average | 331, 321, 312, 221, 213, 231, 241, 251 |
| Can't lose | Often made the largest orders but did not return for a long time | 155, 154, 144, 214,215,115, 114, 113 |
| At risk | Customers who have not purchased recently and/or generally used to spend more in the past | 255, 254, 245, 244, 253, 252, 243, 242, 235, 234, 225, 224, 153, 152, 145, 143, 142, 135, 134, 133, 125, 124 |
| Sleepers | Customers who have not made a purchase for an extended period of time | 332, 322, 233, 232, 223, 222, 132, 123, 122, 212, 211, 111, 112, 121, 131, 141, 151, 111, 112, 121, 131, 141, 151 |
The segments are displayed in tiles on the chart with all the necessary information:
- number of contacts in the segment
- percentage of all contacts involved in the analysis
- segment name
Colour saturation reflects the number of people in the segment (the darker the darker, the more contacts).
By clicking on a segment, a side menu appears in which you can see:
- segment name - and change it
- segment description - and change it
- number of contacts in the segment
- percentage of all analysed contacts
- sum of all orders of all contacts in the segment (minus returns)
- the number of all orders of all contacts in the segment
- average cheque (minus returns)
- button to create an RFM segment for further communications
The title and description of each segment can be changed.
- Changed texts apply to the whole account, but only to the language selected in the account, i.e. when you change the interface language, they revert to the default values in the selected language.
- If you clear the RFM segment description (without entering new text), the template description will still be displayed, not a blank one.
The segment assigned to a contact (current and previous) can be seen in the Contact card ➔ Purchasing information ➔ RFM segments:
Segments are updated every time they are recalculated. If you changed the segment name on the RFM report page, it will also change in the contact card.
For further communications, you can select contacts via the “Create Segment” button in the RFM report or via Data → Segments → New Segment (for messages), choosing those, who:
- belong to a certain RFM segment
- have moved from one RFM segment to another (you can specify from which to which segment)
- don't belong to a certain RFM segment
To do this, select the condition “By contact information” → RFM.
You can set the values of current and previous RFM segments (“Current RFM segment equals…” and “Previous RFM segment equals”) and exclude contacts of certain RFM segments:
Note that the segment is only saved when you click the “Save Segment” button.
Benefits of RFM Segmentation
Communications based on the change of RFM segmentation play a key role in marketing and bring significant business benefits. RFM analysis allows marketers to effectively segment their audience and send personalized messages to each segment.
When RFM segment switches, it means that customer behavior is also undergoing changes. For example, a customer who used to purchase frequently and for large amounts of money has suddenly stopped buying products or services from you. This is a signal for marketers to adjust their communication strategy with this customer.
Based on RFM segment changes, you can react in time to changes in customer behavior and adjust communications in such a way as to interact with each segment as effectively as possible. This allows you to retain loyalty, encourage repeat purchases and increase the average check.
In addition, communications based on RFM segment changes help businesses optimize their marketing budget. Instead of spending money on mass mailings that may not be effective for some segments, marketers can send personalized messages to those customers most likely to generate revenue.