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Describing RFM Segmentation With Customer Grids


In Repeat Customer Insights I developed the Customer Grids so it's easier to see visually how RFM works to segment your customers.

By combining two RFM components, the three grids are able to describe a large amount of customer behavior in one area.

Recency-Frequency (RF) Grid

The Recency-Frequency Grid shows the relationship between how recently customers have ordered against how many orders they've placed. This relationship strongly correlates with customer loyalty (and defection).

Frequency-Monetary (FM) Grid

The Frequency-Monetary Grid shows how much customers are spending with their orders on average. Average spenders are spending close to your store Average Order Value (AOV). While customers who spend more fall into the higher Monetary segments and those who spend less fall into the lower Monetary segments.

By including Frequency, this automatically adjusts the segments so the number of orders is factored out of the segments. That puts one-time customers on equal footing with repeat customers as far as their order values are concerned.

Recency-Monetary (RM) Grid

The Recency-Monetary Grid shows the relationship between your customer loyalty and the amounts they spend. This can help to see if you're retaining bigger spenders or if they are defecting.

Which grid you'd use would depend on what you're focused on for your store right now. It's normal to switch between them over time as you deal with growth, acquisition, or slowdowns.

If you want to get your own customer grids analyzed, every account in Repeat Customer Insights includes RFM, Customer Grids, and other customer segmenting options.

Eric Davis

This originally appeared on the LittleStream Software Blog and is made available here to cast a wider net of discovery.
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