RFM is not a rule of thumb of direct marketing. It’s way bigger than that.
The more I study it in the context of all we do online and offline today, selling products and services, it is abundantly clear that RFM is actually a foundation of human behavior.
I have an additional spin on RFM today–“RFT”–and I would like to thank my friend and coach Perry Marshall who gave me this new distinction.
But I think a refresher course on RFM is in order first.
Some of this is from a post I did about a year and a half ago—feel free to skim if you know it as well as you should and if you are applying regularly without further prompting.
I’ve been shocked how many people practicing direct response marketing today are not even aware of the term–or that analyzing RFM on their customer list might be the most critical and basic thing to do over all else.
While at its most sophisticated level on multi-million name databases you may need a statistician figuring out RFM formulas and models for you, it’s actually a pretty simple concept accessible to anyone–and much of it can be done by observation and “tallying” (or tagging) your prospects and customers this way.
Let’s break it down:
1) “R” is for Recency
What this says is that a suspect/prospect/customer who interacted with you more recently is far more responsive (and immediately more valuable) than someone who responded less recently.
I remember when I entered the direct marketing industry in 1981 how much this didn’t make sense to me logically…thinking that if someone just bought from me, they now had less money to buy something else from me right away.
I even remember an old time legacy publisher who did not rent their mailing list of book buyers to other mailers offering books because they foolishly thought that, “every person has a set budget to spend on books per year and we only want them to spend with us.”
I guess it’s no surprise that the company is no longer in business, failing to understand that no one has unique names, only unique lists…and also failing to understand that all boats rise when we keep the folks on our list active and happy with all kinds of relevant offerings.
Thank goodness I discovered how naïve I was within days of entering the world of direct response and that I didn’t fall into the trap that some others did at the time.
It still astounds me when I think about the companies who considered themselves direct marketers back then who didn’t understand the power of recency.
Fortunately, most marketers today know the importance and value of recency…when have you not received a pop up or immediate cross-sell (or up-sell) offer immediately after buying (or even inquiring) about something online?
In direct mail, the names of more recent buyers are called “hotlines”–and list owners still charge a premium for those names.
I have been lucky that I have been able to see firsthand–over decades of mailing millions of names and almost always selecting hotlines on lists–that recency is more often than not the make-or-break whether a list pays out.
The importance of recency should never be lost.
And this is as true today as it was in the past.
2) “F” is for Frequency
Man cannot live on recency alone.
Frequency pushes us to combine the most recent buyers (or inquiries) with the most frequent buyers or inquiries (what we called “multibuyers” in the direct mail list business).
Recency and frequency gives you a one-two punch that will enable you to segment any list, no matter what the size, in order to focus on the people who will be your best customers for subsequent products or offerings.
Again, for many of you, I know this sounds basic.
Of course someone who bought from you multiple times is a better customer than someone who bought from you once…or never…right?
But let me add creative and copy into the mix here:
Are you communicating with a “multibuyer” with different language and offerings based on their relationship with you as opposed to communicating with them as a one-time buyer or inquiry (for example)?
Or are you sending the same message to the “3 time buyer who bought their third product from you today” to the “one time buyer from 6 months ago?”
The first group is “family”…the second group are “invited guests.”
And there are even cases where frequency trumps recency…based on the direct marketing rule of thumb that your “expires” (or previous customers or buyers) are usually your “best list.”
Example: If you had a subscriber to a publication who renewed multiple times and then stopped subscribing 6 months ago, mailing them again with messaging that speaks to them like “family” (e.g. “We want you back!”) rather than messaging that speaks to them as a “guest” (i.e. like any other new prospect), you are clearly missing a huge opportunity. And this would apply if they stopped subscribing a year ago…or more.
While recency of when they expired is still important to know and select by, I have had experiences in my career where I was able to mail expires who have not been active for 3 or more years and we could still revive them–and make them active again–by knowing their real value as previous, frequent customers.
I know most of you know this instinctively…however, I have consulted with too many marketers and heard too many horror stories from folks who use “one-size-fits-all copy” to all segments of their audience; and even something as simple as “we want you back” to a segment of frequent, former customers (who may not be recent) can double your response rate…or more. I’ve seen that happen.
They know you know them already…you know them much better than you might be acknowledging…and you also (I hope) once loved them.
Why would you want to hide that?
3) “M” is for monetary value
Now round out this RFM formula by making sure you know the total amount of money every person on your list has spent with you…and create “tiers” that make the most sense based on the price point(s) of your products.
The amount of money spent by each customer, in isolation, can be deceiving however…but combine it with recency and frequency and you will see the power of segmenting your list in this fundamental way.
And making sure you don’t have “one size fits all promotion” as I mentioned before (emails, letters, anything)… and that you talk to your customers based on their relationship with you…all “calculated” through RFM…can be a game changer.
I want to share a quick story to bring this home:
I have a friend/client who has 18 different products…and she does an incredible job cross selling and upselling to her existing customers the products they have not bought previously.
But when I saw a breakout of her buyer list, something like 80% or more of the folks had only bought one product while most of the others had bought 2 or 3 at most…and it seemed that with some “RFM segmenting tweaks” there was huge potential to get more of those “1 to 3 time buyers” to buy much more given all of the related offerings available.
We got religion on this when I noted that there was ONE person on the list who bought ALL 18 products (and no, it was not a relative!)…and I asked the question:
“When did you invite this 18 time buyer to dinner?”
Of course I was being a little sarcastic…but I was also trying to make an important point.
Yes…”lists are people too.”
From that question we started surveying the most recent, frequent and high dollar spending customers, finding out why they bought multiple products and also in what order they bought them to look for trends in buying behavior.
That led to what I call a logical (and much more successful) “contact strategy” where we started offering products to previous buyers in a sequence that made more sense than simply making random offerings.
I guess there might be some of you, sophisticated online marketers, saying to yourself, “that’s simply a funnel.” And you would be right. I just want to emphasize that if you are creating your funnels based on previous buying behavior (and RFM) they will be much more powerful.
This strategy was rooted in addressing the needs and buying patterns of existing customers…and of course with copy and creative that spoke to why their recent purchase leads perfectly to the next purchase…with customized copy to different segments.
RFM ruled the day even before anyone ever used the word “funnel.”
I am only scratching the surface how something as basic and fundamental as RFM can change your entire marketing strategy in terms of which offers to offer when–and how to speak to different segments of your family, online or offline, when making those more targeted offers.
It’s an entire chapter in my new book. Overdeliver (which comes out next April).
But I needed to give you a preview of this critical chapter just in case there is even one person in my online family who doesn’t look at RFM as the most important, basic segmenting tool at their disposal.
It’s the one thing that always needs to be in play when doing any kind of direct response marketing.
In a world where it takes a lot more time for prospects to write you a check or give you their credit card number (e.g. Facebook), looking at the “M” in the RFM formula (i.e. how much money they spend with you) often needs to be analyzed by “T” (beforethey spend anything with you)…and the “T” stands for “Time.”
This is taking the cliché “time is money” in a different direction.
The “T” here refers to the level of engagement your prospect has with you from the beginning of (and throughout) the relationship which has a direct relationship on how they buy, when they buy…and especially how long and how much they will buy from you in the future.
This was true in an era before there was digital content and when it was too expensive to give away your best stuff leading up to a sale.
And it is even truer today.
But as I outlined in the direct mail case history I called “the survey package vs. the bookalog” in the post, “How you sell is how they respond,” heavier initial engagement in direct mail led to much higher profits and higher lifetime value…and the same is true today in digital marketing.
For example, if you track how much time someone spends on a video sales letter or pre-launch content (video or text) you can predict response rates, sales and repeat sales with much more confidence.
In the olden days, someone who spent time reading a 24 page promotion rather than a sweepstakes promotion (for example) might not respond as vigorously at the outset…but the odds of them being more wedded to your product from day one was much higher as was the likelihood they would want to engage with you more deeply with products two, three and four.
In the “RFT formula,” recency and frequency are just as critical; but tracking “time” when you can’t yet track “money spent” is as indicative of predicting success if they had spent money with you already.
I guess you can say the more time they spend with your content (and do it recently and frequently too), the more likely they will be “engaged to be engaged”…leading to “fully engaged”…and of course that should lead to “marriage.”
And in case you don’t know it, bigamy is legal in direct marketing.
P.S. With Thanksgiving in the U.S. coming up this week, it’s a good time for all of us to take inventory of all we are thankful for.
I’m planning a video for next week to remind you to stay thankful all year round and not just once a year.
But here is today’s pre-Thanksgiving message:
I mentioned in the past that the hardest thing to write in my new book was the acknowledgments section.
We all stand on the shoulders of giants and I was reminded this week after traveling to two mastermind groups where I am a member that it is often better to be the student than the teacher.
But be both whenever and wherever appropriate too.
In addition, always acknowledge generously whether you are learning or instructing.
And be thankful always.
P.P.S. And for those of you in my online family outside of the U.S., you’re missing out on a feeding frenzy but the advice is still the same.