Why Use RFM?
RFM is short for Recency, Frequency and Monetary. These three variables when applied to a customer file become the backbone of mailing segmentation. Recency is based on when the most recent purchase was made. Frequency relates to the entire number of purchases made in a customers life-to-date. Monetary is the total money spent.
For any given mailer, a very small percentage of the customers spend most of the money. This is best captured by the Pareto Principle (80/20 Rule). 20% of your customers spend 80% of the money. As your customer file ages, it becomes less and less productive to mail all your customers. To identify the best 20% (or whatever proportion of your customer file is productive to mail/contact) we apply scores to your customers, produce reports and allow you to select as deeply as you feel appropriate. As results are generated, mailings become fine tuned with circulation increasing in the best seasons and decreasing when business is traditionally slower. Your circulation plan thus maximizes both sales and profits.
“To be useful, recency, frequency and monetary value must evolve hour by hour, day by day, week by week, month by month, quarter by quarter, and year by year. The value lies in the ability to see change over time; indeed, that may be the only value as it becomes a replicable measurement of consistently improving profitability created from increasingly better decisions.” Donald R. Libey, Author of Libey on Recency, Frequency, and Monetary Value (The Libey New Century Library).