How to find and keep your best customers using RFM segmentation
Who are your best customers? How do you define them? What should you do about them? If you’re a marketer or run a business, these are important questions. Only by answering this question, you can keep your best customers and get them to continue buying from you. RFM segmentation offers a great way to identify your best customers, which is something we’ll cover in this article.
Who are your best customers
For some businesses, it’s safe to assume that the best customers are those with the highest-value orders. Others identify the top customers based on their level of engagement. Neither of these definitions are wrong. What defines an ideal customer varies based on the nature of a business. But ultimately, a great customer is the one who spends more and does it all the time. What would be the worth of a customer who places a big order once and leaves for good? Similarly, a customer who is always around but does not spend much is also far from the top of the list. So, it’s important to take all these different factors into consideration when identifying your best customers.
Why should you care?
In short, they won’t stay your best customer forever. If you fail to acknowledge them and keep them engaged, they’ll eventually churn after finding better alternatives. To encourage customers’ loyalty in the long term, you should invest in strengthening your relationships with your top customers.
Furthermore, identifying your best customers will help you run more personalized and targeted reward and referral programs. Customer referrals help in decreasing costs to acquire customers. In addition to this, those who are referred to your brand by someone they know are 4 times more likely to buy something.
What RFM segmentation is and how it helps
RFM segmentation is a data-driven tool that helps you accurately group your customers based on their purchase behaviors. It sorts them according to their recency, frequency and monetary metrics of their purchases. Generally, those with the highest score on all of these dimensions are your top customers. However, this is not necessarily the case with every business out there. Depending on the type of your business, you might want to give more weight to one of those RFM metrics than the others. Let’s break this down a bit:
RFM for consumer non-durables businesses
Take a restaurant as an example. Its customers tend to place frequent orders every month, however the amount of transaction or monetary value is not that high. In this case, you may want to focus more on recency and frequency to find your best customers.
RFM for consumer durables businesses
If you’re running in a consumer durables business – such as a white goods store – the monetary value weighs more than recency or frequency. Customers usually don’t buy a washing machine on a monthly basis. But this doesn’t mean the recency and frequency should be ruled out completely. Of course it’s still important to get customers to keep buying from you, just not as frequent.
In this article, we assume that all three dimensions are of equal importance. You may adjust it depending on your business model.
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How to identify your best customers using RFM segmentation
I use the Growmatik tool to implement RFM segmentation. It’s free and simple. And it also takes care of sending automated emails to the best customers.
Step 1: Let’s start with recency. Open the People page, and select All customers from the menu above. Now add a filter for Shopping Activity > Purchase date. Since we want to know when the last purchase was made, choose Last timeon the top and then select less than x days ago.
You can select 30, 90, 180 days or just any number of days that makes more sense to you. However, if you’re selling durable products, go for much longer periods of time. But remember that you are identifying your best-ever customers so keep the bar high enough.
Step 2: Add another filter to reveal the frequency of purchases. Choose Shopping Activity > Number of orders. Use greater than x and enter a reasonable value. Again, if you’re running a consumer durables business, enter a relatively smaller number.
Step 3: It’s now time for the monetary metric. To select users based on the value of their transaction,. from the filters list, choose Shopping Activity > Order value and similarly use greater than x.This amount varies based on your product price tags.
Step 4: Almost there! Now, simply save the segment so that you can use it anytime you want. Click the save segment button on top and enter a name.
How to nurture the best customers
Now that you’ve identified your best customers, you can target them with personalized messages and promotions. You can design tailored marketing campaigns and run loyalty programs and much more to keep them happy and engaged with your brand. Here are just a few ideas to get you started:
It’s no secret that everyone enjoys being acknowledged as being the best – and the same holds true for your customers. If you can clearly convey the benefits of your VIP program, then your customers will be more motivated to gain VIP status. Here are some of the several incentives and offers you can use for your very best ones:
- Send out sample products
- Excite them with birthday gifts
- Give away branded swags
- Run exclusive sales
- Roll out early access
- Offer perks such as free returns or free shipping
Tiered reward programs
One excellent way to gamify your rewards program, make it even more select and increase the engagement of your customers is through tiers. Reward programs that are tiered provide various rewards that depend which tier a customer falls into. The way it works is that customers must first make it past a certain milestone before moving onto the next level.
Tiered programs are particularly wonderful because of how exclusive they make your most valued customers feel. Tiered reward programs offer better rewards to customers that make higher tiers, which allows you to show them that you appreciate their business – more so than that of a one-time customer.
It should be clear by now how important it is to keep your best customers engaged and encouraged. They are the most potential source of repeat purchases and a great target for your referral programs. Identifying your top customers is a major step towards better customer experience and RFM is a neat and simple way to accomplish this.