RFM Analysis: Customer Base Segmentation in Email Marketing

Even as customer segmentation becomes more popular among email marketing professionals, companies often find themselves struggling to use data tools and segment their audience accurately. In these times of big data and consumerism, understanding the language of data means understanding your customers. Data can provide a sophisticated insight around customers, their preferences, needs, and pain points, enabling you to create more personalized and effective email campaigns.

Behavioral analysis and data-driven marketing are thriving as more email marketers understand the value of knowing their customers. The good news is that innovative email marketing methods and analytics offer a wide spectrum of opportunities to understand your customers better.

Instead of analyzing your email list altogether, it’s better to segment customers into comparable groups and study the behavior of each group separately. This way, you can create a more targeted and personalized email marketing campaign.

What is RFM analysis?

RFM analysis is one of many customer database segmentation methods that implies segmenting your audience based on customer activity. Experts from Ivory Research, an essay writing service, suggest that the RFM segmentation method is an easy and natural way to identify customers who are more likely to actively respond to your marketing efforts.
RFM analysis is based on three elements: recency, frequency, and monetary value.

Let’s take a closer look at each of the three elements to get a better perspective of how RFM analysis works. 

Recency 

How recently did your customers interact with your brand? Recency helps to predict which email subscribers are most likely to respond to your offer. For example, subscribers who have made a purchase recently are more likely to respond to your marketing efforts compared to those who did not.

Frequency

How often do your customers make purchases? Higher frequency indicates the higher chances of customers responding to your offers.

Monetary value

How much money have your customers spent on purchases? Customers who spent more money on their past purchases are more likely to purchase again compared to those who spent less.

How to apply RFM analysis in your email marketing campaign?

If you want to perform RFM segmentation to improve your email marketing strategy, the first step is building a database of all your email subscribers. Once you’ve created such a database, each of the customers in the database should be assigned with the following fields:

• Last purchase date

• The total number of orders

• The total amount spent

Now, you can segment your list and calculate the RFM score for each of your email subscribers. 

Calculate the recency score based on the date of the most recent purchase. Each business applies unique segmentation methods.

You can use this segmentation method as a reference when assigning each customer with their recency score.

Segment 1 - last purchase up to a month
Segment 2 - last purchase up to 3 month
Segment 3 - last purchase up to a year
Segment 4 - last purchase more than a year

Similarly, you can calculate the frequency score based on the number of orders your customers placed, as well as  the monetary value based on the amount of money spent. Customers who end up with the highest RFM score are considered to be the ones who are most likely to respond to the offers listed in your email marketing campaign.

The bottom line

RFM analysis allows you to make more informed decisions and be more accurate with your predictions. The method can be used to segment responders from non-responders before you send out emails. It also allows you to create email marketing campaigns that are more targeted, as well as  direct email marketing campaigns with higher engagement rates.

In some cases, the RFM analysis can be simplified to just recency and frequency. Not to mention that RFM analysis is an effective customer segmentation tool that can be applied far beyond email marketing.

If you’re still hesitant to implement the analytical approach in your email marketing efforts, ADMA’s marketing course will be of great help! The Email Marketing Essentials Course provides an in-depth explanation of every email marketing aspect, from the role email marketing plays in the overall marketing mix to reporting, analyzing, and optimizing your email marketing campaign.