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Hal Licino

RFM: The Critical Metric Less Than 1/4 of All Email Marketers Apply

Sep 21 2010, 12:45 AM by

A Forrester Research study recently demonstrated that 71% of all email marketers consider click-through rate as a valuable metric while 61% also track open rates. One of the most significant metrics available is applied by less than one quarter of all email marketers. This is baffling since it is one that can provide considerable results. Here is a definition of that metric and how to master it to boost your brand's sales.
77% of Email Marketers Ignore the Value of Their Customers.

The study revealed that only 23% of all email marketers take into consideration the actual value of their subscribers. Ignoring this critical aspect of your customers' profiles can be a serious shortcoming as research has proven that:

Customers who have made recent purchases are more likely to buy again.
Customers who buy frequently are more likely to purchase again.
Customers who spend the most money are more likely to make other sizeable purchases.
Customers who are most valuable tend over time to become increasingly valuable.


Open and click-through rates provided by your email marketing software are not the end-all of performance metrics, as they do not provide data that is finely grained enough about the value aspect of your prospects. The application of another metric can provide valuable insight into consumer purchasing behavior and the overall value of a customer. This metric can also allow for accurate predictions of required inventory and staffing. This metric is known as RFM, and it's not just another online radio station:

Recency - When was the last time that the customer made a purchase or performed a conversion?

Frequency - How many purchases or conversions were made over a set amount of time?

Monetary Value - How much money did they spend?

These aspects can readily be applied to engagement, thus recency would measure the latest open or click by a subscriber; the frequency would monitor the opens or clicks over a set time period; and the monetary value would represent the money spent over a specific amount of time or other engagement score based on opens and clicks that reflect income to the company.

RFM Separates the Valuable Customers from the Effectively Inactive.

The primary benefit of RFM metrics is that they allow you to quickly identify your truly valuable customers while separating them from the in-actives. Through the implementation of RFM data, activity scores can be generated for each customer, determining what their true value to your company is. Some of the advantages to your overall campaign strategy that this form of analysis provides include:

Greater accuracy in your segmentation
Positive reputation as you're sending to customers who want to hear from you
Decrease in list churn and fatigue
Design of a re-engagement strategy to recapture inactive customer interest
Targeting the higher spending customers to increase profitability and sales

 

You Can Target Your Brand Evangelists to Solicit Their Loyalty & Advocacy.

All of these factors can have a marked effect on the return on investment of any email marketing campaign. The identification of your most valuable customers can lead to an expansion of your marketing reach. After all, these are your "informal brand evangelists," so you can support their advocate activities by:

Providing advance access to new products and services
Sending product samples to encourage online sharing and blogging
Allowing insight into product development and other "behind the scenes" peeks
Rewarding loyalty with frequency discounts and special offers


Surprisingly, the best approach with high value customers is not to barrage them with the same promotional messages you're sending off to the rest of your list. They're already aware of the virtues of your brand, so you're far better off engaging them in personal dialogue about topics that are of specific interest to them. Encouraging direct one on one communication and feedback is going to drive home the message that you know that they are "special" and you're taking steps to reinforce that relationship.

The Lowest Scoring RFM Customers Can Be Offered the Biggest Incentives.

RFM analysis also provides valid intel on the subscribers in that vast grey area between evangelists and inactives. By determining their periods of inactivity and their overall response rate, a sliding scale discount offer can be concocted: The largest discount offers go to the least responsive, most inactive customers to encourage their return to activity.

RFM is a valuable metric that merits consideration right beside opens and click-throughs in your email marketing campaigns.

Posted in Tips & Resources

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Comments

Edward

Oct 01 2010, 06:51 AM

Very interesting - thanks for this information,

Mal

Oct 03 2010, 04:35 PM

wow - great advice, thanks.