hey guys what's up it's John fromsegments here welcome to the secondepisode of econ theta cooler talk whenwe're talking about important topics ande-commerce and data makes my watercooler okay so the topic today iscustomer segmentation and yourparticular RFMso what is RFM RFM is a data modelingmethod used to describe how value eachcustomer is it stands for recencyfrequency and monetary with just nothingmore than just three metrics to describewhat your customers did recency isamount of time usually measuring daysbetween when your customers are orderedto today frequency is the total numberof orders they have placed in theirlifetime and monetary is just an averageamount of money they spent on thoseordersso RFM started in the days of directmarketing and remains one of thesimplest and most effective toolsecommerce and retail today so how doesit work so to create an RFM you have totake your customers data and assignnumerical values to teach each of themfrom high to low so here's an examplewith just three values of high mediumand low all right you take yourcustomers order data tone number oforders in a column and you sort it fromA to Z and you sign a score of 3 tothose customers with a with zero ordersand then you sign a value of 2 forcustomers with one order and you sign avalue of 1 for those customers with twoor more orders or repeat purchasers andthere you have it that's your frequencymetric so you repeat the same processfor a recency with order days and thenmonitor with those amounts spent andIndiana you end up with three valuesthat describe how volume for eachcustomer is and that gives you your RFSmetric so what is RF that matter wellour FM helps you sort and arrange yourcustomers from best to worst and ishighly effective in describing customerbehavior so for example with our FM youcan create your MVP segment which scoreshigh on all three pillars or your highspend new customers which has highervalues for recency and monitorand low value for frequency having justrecently purchased or maybe on the otherhand the spectrum you have high highvalue turning customers which has a lowscore on recency because they have notpurchased for a while and you want toprevent them from from turning all theway to low value customers which havelow value across the board and it'sunlikely that it will be worth anythingto you anymore and it's probably best tojust suppress them so why should I carewe have found that the top 5% ofcustomers on average spend 10 times morethan the other customers and representroughly about a third of your totalrevenue these top customers have higheraverage order value they buy more theystay around longer and they're morelikely become loyal fans of your brandwhich in turn you know generatesword-of-mouth through social mediagetting more referrals and makes themmore valuable in the in in the end soyou sure you want to spend and focusyour energy on the the best customersright and making sure that they're happyand rfn gives you a simple way to knowwhere to focus on and what to do so whatcan RFM do for me well if you haven'talready start using RFM to create thosecustomer segmentation and startoptimizing for example you can roll outthe red carpet for your VIPs createnurturing series for people most likelypurchase set up offer some remindersreview who likely to churn and createwimba campaigns for those turnhigh-value customers and you know theretard retargeting efforts sosegmentation you know really works tohelp you increase opens and clicks increating bringing more marketing dollarswith RFM you'll be able to create morerelevant contextualise campaigns todifferent people for different purposesyou know if you haven't done it alreadyI strongly suggest to start looking intoiteither putting to work yourself tocreate segments or find apps likesegments to help you achieve this orhire partners to have a set up in factone of my customers told me that throughour fans she was able to find 20% moreiPhone customers in her annual planningthat she wouldn't have thought ofotherwise so in summary our F M standsfor recency frequency and monetary withrecency being the most important whybecause online shopping is a noncontractual commercial act right peopleare free to come and go as they pleaseand so you are only sure that someone isquantico alive and interested in yourbrand new your store with a recentpurchase and that's why it's the mostimportant so start sorting yourcustomers from best to worst and startbuilding those RFM segments into yourmarketing activities or optimizing don'tforget data is power and we want to giveecommerce data powers back to people sojoin us and start recording with yourdata today
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