How to Create an RFM Score
RFM scores have been used by savvy, data-driven marketing professionals for more than 40 years. While direct marketing efforts are most often associated with utilizing RFM scores, a host of customer acquisition implications exist. RFM is an acronym for recency, frequency and monetary and is applied to an existing customer base to determine each customer's value to your business. Once a value is determined, deciding who to market your products or services to becomes second nature.
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Instructions
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Develop a grid, assigning a point value to each of your customers from one to three--with one indicating the highest ranking and three the lowest--for each area of the RFM score. For example, a customer who recently purchased from you would receive a one in the "recency" column.
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Total the RFM score for each customer. These totals will range from a potential low of three, to as many as nine, depending on the recency of their last purchase, the frequency in which they purchase your product or service and the amount they spend when they do purchase.
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Rank customers by placing the lowest RFM scoring customers at the top of the list--these are the customers closest to a total of three--in descending order with the highest-scoring customers at the bottom.
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Analyze and subsequently use the grid to target and implement marketing efforts with an emphasis on the lowest-scoring customers. These are the customers who ranked at, or near, the top in each of the three RFM areas.
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Tips & Warnings
Developing and implementing RFM marketing techniques is much like golf: the low score wins. Once the "winners" have been identified, it takes very little to continue segmenting the results. Geographic, age and other common attributes amongst the best customers will provide additional, targeted marketing opportunities.
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Resources
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