There are many ways to segment your email list to increase customer engagement and your revenues. One of those ways to use RFM in your email marketing campaigns.
Essentially a customer behavior tactic, RFM looks at customers from the perspective of recency, frequency, or monetary value. Or a combination of all 3.
In this article, we’ll explain the basics of RFM, what it means in marketing, and its benefits. We’ll also show you how to create RFM emails that drive engagement and sales.
RFM is an acronym that stands for recency, frequency, and monetary value. It’s a type of segmentation that looks at your customers’ behavior. Specifically, from a financial perspective.
Recency indicates customers’ most recent action towards your brand.
This could be when they last engaged with, or bought a product, or even opened one of your emails. Or any other recent behavior.
Frequency explores how often they perform an action or behave in a certain way. This could be how often they buy from you, how often they buy a certain product, how often they add products to their cart...etc.
Finally, there’s monetary value, which usually indicates your top-spenders. It can also help you determine your customers’ lifetime value. You can use that information to increase CLV and customer retention.
By combining all three RFM metrics, you can get a clearer picture of your customers’ behaviors and buying habits. For example, you may find that your top spenders aren’t your most frequent buyers. Or that of your frequent buyers, only 10% have an average order value of $100+.
The segments resulting from your RFM segmentation efforts are called RFM segments.
Marketers use RFM to understand their customers’ behavior in order to make better budget allocations.
For example, they can look at their most frequent buyers and create marketing campaigns that target these people.
Alternatively, and especially with expensive products and services, marketers may prefer to segment customers based on monetary value.
In this case, targeting customers who spend more than others can be an opportunity to advertise high-end, luxury items.
RFM relies on the concepts of recency, frequency, and monetary value of a customer. Using RFM in email marketing involves segmenting your email list based on those 3 segmentation concepts.
You can segment customers based on their most recent or most distant purchases. You can also combine two or all three segments.
For example, you can look at customers who made more than two purchases in the past week. That’s recency and frequency.
You can then create an email campaign offering them double points on their third purchases as a way to incentivize them to buy more.
Let’s look at why RFM customer segmentation is crucial for e-commerce and other businesses.
First and foremost, RFM segmentation helps you learn more about your customers and their buying behavior.
This can help you in a multitude of ways. From creating better marketing campaigns, to deciding where to direct your ad spend, to boosting your sales and revenues.
For example, you may learn that many of your customer segments prefer to make purchases ahead of the weekend. Creating RFM emails and sending them a day or two before the weekend will engage this segment, prompting more clicks and purchases.
Understanding how, when, and why your customers buy from you helps you create better email and marketing campaigns. It can also contribute to how you create your loyalty marketing strategy and engage with them in your loyalty program.
Not only do you get a clearer understanding of your customers’ behavior, but also you can improve your customer segmentation.
Creating better customer segments means you group customers with similar behavior together. This can positively impact both your customer engagement strategy and referral marketing efforts.
RFM segmentation helps businesses see who their biggest spenders are. It also shows them how often these top spenders buy from them.
Are they top spenders but infrequent buyers? Or are they frequent buyers but with low average order value?
You can also create segments within your top spenders. For example, you can group customers who spend $100 or more per month in a segment and customers who spend $200 more in a second smaller segment.
The value you set will depend on the value of products in your store. Luxury brands can set the minimum at $1,000 or more per month to identify their high-value customers.
As mentioned, RFM segmentation helps you identify customers based on buying behavior. This can help you create better, more targeted marketing campaigns.
For example, you may find that some customers haven’t made purchases from your online or physical store in the past year. You can create a re-engagement campaign to entice them back to your store.
You may find that the re-engagement campaign didn’t work with several of those customers.
Not only that, their monetary value may show you they aren’t high spenders. So, you may decide to focus your ad spend on attracting new customers and increasing sales to current ones.
A major benefit of using RFM in your marketing strategy is being able to see your at-risk or about-to-be-lost customers.
These are usually customers who haven’t made recent purchases but still engage with you in some way.
For example, they may not have made a purchase but continue to add items to their cart. Or they may have opened your recent emails, or even clicked links in those emails. But never went beyond these actions.
You may choose to create a campaign to drive them back to your store and get them to complete that purchase. Alternatively, you may choose to send them a quick survey to see why they’re not buying from you.
You may learn that their last buying experience wasn’t a good one, hence their reluctance to buy again. They may have received ruined packages, called customer service, who didn’t solve their problem, or something else. Or maybe they moved to another country and therefore cannot buy from you anymore.
Another major perk of using RFM segments is increasing customer retention and improving your customer retention strategy. Loyal customers are those who keep coming back to your store.
In other words, customer retention is a big deal. One benefit of using RFM segmentation is increasing the number of loyal and regular customers.
Customer lifetime value (CLV) looks at the value of a customer’s relationship with your business over a period of time.
Businesses, across industries, use CLV to estimate how much customers are worth to them. Using RFM segments, you can uncover your high-value customers and focus on increasing their lifetime value with your brand.
Knowing who your most valuable customers are means you can invest in them through ads, loyalty programs, and more.
Using RFM marketing offers an overall improvement in your return on investment (ROI). Be that in your social media or PPC ads, your rewards program, or elsewhere.
RFM shows you the customers that matter. This means you can effectively target those customers with offers, engagement and email marketing campaigns, and more.
Last but certainly not least, RFM segmentation helps you cut costs and save time. Knowing who your loyal customers, top spenders, frequent buyers, and other types of loyal customers are, you can create better-targeted ads and campaigns and increase your return on ad spend (ROAS).
In addition, knowing your most valuable customers means you don’t have to waste time or money on customers who aren’t likely to buy from you again.
At Gameball, we’ve expanded RFM segments into 7 instead of the standard 3. Through our research, we’ve identified segments based on their behavior and where they most likely are in your sales funnel.
You can look at these 7 segments as customer personas. They are:
Now, it’s time to see how to create RFM emails that drive results. We’ll look at examples for each of the above 7 RFM segments, along with their combinations.
First, let’s be clear. You can use RFM emails in many ways. The following are examples and ideas to get you started. You can also use the same email idea across all three segments.
You can look at each segment in two ways. For example, with recency, you can look at most recent purchases or the most distant purchases.
With frequency, you can look at those who ‘buy the most’ and those who ‘buy the least.’
How you use each RFM segmentation method is up to you.
Create re-engagement emails for your can’t-lose customers
As mentioned, your ‘can’t lose customers’ are those who make high-value purchases, but infrequently.
See when they last made purchases and create a re-engagement email campaign. Give these customers a reason to be frequent buyers.
Are they aware of your customer loyalty program? Do they know they’re rewarded for purchases and referrals?
Start by sending them an e-commerce email flow or sequence to download your mobile app and sign up for your rewards program. If you don’t have a mobile app, they can sign up and activate their account via your website.
Your flow should include emails about the benefits of joining your rewards program.
Review your customer analytics to see who recently signed up for your loyalty program. Did they complete their first purchase or just add in their details?
If they’ve not made their first purchase, remind them of your new-sign-up discount (preferably using a discount code) and get them to complete that purchase.
After getting your new customers to complete their first purchase, use Gameball’s RFM emails to continue engaging those customers. Send them emails about the various rewards they get when buying regularly from you.
Tell them about monthly and seasonal challenges where they can earn double points, badges, and other rewards.
Frequency works in two ways. You can use frequency to see frequent buyers and infrequent buyers.
Here are a few RFM email campaign ideas to try out.
Your promising customers are those who’ve bought from you in the past but they’re not frequent buyers. Their last purchase may have been recent or not.
Many of those customers are likely to be discount seekers. Or they’re just not aware of the benefits of buying from you more often. Like getting points and rewards.
You can create various RFM emails for this segment.
1) Create a campaign inviting them to join your rewards program.
2) Create a promotional campaign offering them a ‘welcome back discount code.’
Review which customers used the code and track their behavior. Did they use the discount code and stop buying from you for a month? If so, it’s best to create a segment for these discount seekers. Whenever you’re running a sale, email them.
These are only 2 ideas of many you can try with RFM email marketing.
The final RFM segment is the one that looks at customers based on how much they spend. Segmenting customers by monetary value only usually isn’t enough because you want to know if they’re frequent or infrequent buyers.
You also want to know why they make occasional but high-value purchases.
It may be because the type of product they seek isn’t usually available in your online store. Or it’s a product that takes time to consume. Or possibly they buy products in bulk and use them for several months before they run out.
With monetary value, you need to see what other behaviors and habits contribute to or affect the sale.
Using RFM emails, you can survey those customers who make high-value but infrequent purchases. Create a short survey to learn more about why they buy. You can include questions where they fill in the information themselves, not choose an answer from a list.
Ask them about their last experience with your brand. Are they getting the return on experience they expect from your brand? Ask them about their buying preferences, whether they prefer to buy every week, every other week, every month, or when the need arises.
Frequency and monetary value
Create emails targeting customers who buy from you frequently and who have a high monetary value.
Create a special reward or bonus challenge for this segment. The challenge can be to make one more purchase of $100 and win double points, a badge, and a voucher.
If you want customers to spend more, make it worth their while.
Bonus tip: Look at your top spenders’ average order value to determine the AOV for this segment. Setting a figure and comparing people to it may result in fewer customers being in this segment.
For example, if you set your AOV at $500 but your top spenders pay $300 to $400 per month, you’ll skew the results of this campaign.
However, you may use this as an opportunity if you have a tiered loyalty program. You can create a tier for those who spend $500 or more per month, or $5,000 or more per year, and offer exquisite rewards for that tier.
Using RFM segments, identify your top spenders and get them to refer friends and family. They’re more likely to refer people similar to them, whether in the types of purchases they buy, their spending power, or both.
It’s best to combine your referral marketing with your loyalty program points.
In other words, you want to give them a reason to make referrals. Let them know that because they’re special customers, they get double points for referring others.
Be sure to explain how your referral program works and when these customers get their points.
Do they get their points when a referral signs up to your loyalty program? Or when this new referral completes a purchase?
Does the referred purchase get a reward after making their first purchase?
For example, if every customer gets 50 points for each active referral, make sure top spenders know this and know that they’re getting 100 points for each referral. Not only does this make them feel special, but also incentivizes them to refer others.
Creating email campaigns, specifically RFM email marketing campaigns, offer lots of opportunities for your e-commerce email marketing strategy.
Whether you want to engage current customers, re-engage old ones, experiment with new customer segments, the opportunities are endless.
Want to see how RFM emails can work for you? Sign up to Gameball and uncover unlimited customer engagement benefits and opportunities today!