Evaluating RFM vs. Modelling

Ok, you’ve made the plunge, bought a model or modelling system. How do you begin to tell if it works as good as the ads promise?

There are three simple ways to compare your results. Each have strengths and weakness

We built a database for Bullock & Jones, a small upscale menswear catalog based in San Francisco. The modeling process takes about 4 hours for a small catalog. This compares with 4-12 weeks using leading service bureaus. The model projected a 40:1 gain. This is virtually unheard of, 5:1 being considered enough to cost justify the modeling process.

We put the model up against their regular mailing. We found a few thousand names that their RFM overlooked. They generated 3x average dollar per book of additional sales. We were also able to break up their 0-12 month buyers into better cells. This generated a much more dynamic picture of where to consider reducing circulation.

The graph illustrates the difference between interpreting the results of an RFM mailing and a modeled mailing. We can see that the model very successfully predicted the best cells (far left) and the worst cells (far right). You can also see that the slope is much more dramatic on the modeled mailing. This means that even inexperienced circulation planners are likely to achieve excellent results with the system.

“Libey on Recency, Frequency, and Monetary Value” by Don Libey

Don was a good friend and did a very complete job talking about RFM.  In this, his original book on RFM, Don really opens the discussion. “Few direct marketers, either consumer or business to business, thoroughly understand or expertly apply recency, frequency and monetary value in actual practice.”   As an investment and business acquisition adviser, Don really knows what determines a customer list value. I really like this original book because it is very straight forward. 

View full ebook (doesn’t have the nice pictures but still a good read).  Used with Don’s personal permission.