This RFM Scoring Model is one example of a tool used by direct marketers to determine the relative quality of customers based on their purchasing behavior. If you have longer purchasing cycles and higher pricing for your products, a similar model can be developed to fit your specific requirements using this model as a guide.

RFM (recency, frequency, monetary) analysis is used to determine quantitatively which customers are the best ones by examining how recently a customer has purchased (recency), how often they purchase (frequency), and how much the customer spends (monetary). “RFM analysis is based on the marketing axiom that "80% of your business comes from 20% of your customers." RFM is used by direct marketers to determine the promotional schedule and offers sent to customers based on their RFM score. Direct marketers have used RFM analysis to target their mailings to customers most likely to make purchases for more than 40 years. The reasoning behind RFM is simple in that people who buy once are more likely to buy again. Today, RFM ratings have become an even more important tool with the advent of email.

In this model, customers are assigned a ranking number of from 0 to 50 for each RFM parameter. In this model, frequency has the highest point rating, followed by recency and monetary value. Once the customers have been scored, they are sorted into deciles or cells (10 groups) based on their total score, with those customers with scores of 90 to 100 points being the best customers.

Note: RFM does have its limitations. You must be careful not to over market to customers with the highest rankings. And, customers with low cell rankings should not be neglected, but instead should be cultivated to become better customers.

To Use This Tool Click Here

Note: We also build custom marketing tools and calculators.  For more information about this and other services, please contact us.