Build impactful retention strategies using RFM analysis

Gain a deeper understanding of your customer landscape

An RFM analysis is designed to break your customer base into segmented groups by their overall historical value to your brand. “Value” is calculated based on:

• the recency of their last purchase
• the frequency of how often they purchase
• the monetary value of their total historic spend

RFM analysis gives you a snapshot of the current-state of your customer base by identifying your best and most at-risk customers, and can help you visualize customer movement between groups over time. For each customer, the model assigns a score of either 1, 2 or 3 to each input (recency, frequency, and monetary value), and then combines the 3 values into a final RFM score.

333 would be your best customers, as they scored a 3 across all dimensions of the model. 111 would be your most at-risk customers as they scored a 1 across all dimensions.

The resulting RFM score determines which group a customer is assigned to. These group placements change over time as your customers spend more money, or drop off. The results of an RFM analysis can help you:

• Prioritize which audience segments to focus your efforts on.
• Build segments that are driven by real historical value data.
• Clearly define your existing buyer personas.
• Designate tiers within your customer loyalty program.

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Use data visualizations to understand buying trends

Klaviyo’s RFM analysis report gives you a few different ways to visualize and interpret your RFM group data. Explore what each data view is designed to show you, and what insights they can help you draw.

1. Compare distribution of customers

What it shows you: See where most of your customers are concentrated, and easily compare the size of each group.

Why this matters: Are most of your customers Champions? Or is the large majority of your customer base At Risk? It’s incredibly important to have an understanding of what percentage of your customer base is loosely attached to your brand, therefore at a higher risk of churning. Easily compare the size of your customer groups using this chart, as shown below.

2. Group change over time

What it shows you: See movement between groups over a specific time period.

Why this matters: Group change over time can help you determine whether your retention marketing efforts were effective within a given time period. For example, if you are seeing a lot of customers move from Champion to Needs attention, this could indicate that you aren’t doing enough to reward and retain your best customers. Conversely, if you deployed a new winback strategy and want to see the impact, you could use this chart to visualize whether customers moved from At risk or Inactive to Recent over that defined period of time.

3. Median performance

What it shows you: Understand the relative value of each customer group compared to the others within a specific time range.

Why this matters: Looking at raw numbers can be helpful for contextualizing the value and performance of each group. This table will help you assign actual dollar values to the group change that you see in the other charts. You can also view the change in overall value between the start and end dates. For instance, if you invested a lot of resources into increasing AOV and LTV of your Champions and Loyal groups, this chart would help you determine whether there was an overall lift in performance within those groups.

Evaluate your opportunities for each RFM group

Each RFM group presents a unique opportunity to create movement toward the next, higher-value group. The members of each group will be motivated by different things and are at very different stages of their customer journey. That means you cannot use a one-size-fits-all strategy across your entire audience. Dig in to each group to learn more about who they are, and how you can activate or re-engage them.

Champions Loyal Recent Needs attention At risk

Champions

These are your best customers.

They purchased recently, and they also purchase often with the highest overall historical order value.

Your opportunity: incentivize and reward these customers for referrals and user-generated content. Lean into this group to fuel your growth.

Loyal

These are valuable customers who are engaged.

They purchased somewhat recently or purchase often, but their total historical spend is lower than your champions.

Your opportunity: retain these customers and offer upsells or incentives to increase their AOV, hopefully moving them to Champions

Recent

These folks are engaged right now.

They have made a recent purchase, but they do not tend to purchase frequently.

Your opportunity:turn them into repeat customers. Use intelligent and relevant cross-selling and upselling tactics to get them to buy again.

Needs attention

These are high-value customers who have not purchased recently.

At one time, these folks were Loyal or Champion customers, but for some reason, they have not made any recent purchases.

Your opportunity:re-engage these customers before they go. Seek to understand why they are unengaged, and use that information to bring them back in the fold.

At risk

These are low-value customers who have not purchased recently.

This group is likely made up of one-time or few-time buyers who wanted to see what you were all about, and they didn’t spend much.

Your opportunity:do not spend too much time or energy on these folks since they are highly unlikely to re-engage, but put light focus on winback.

Build segments in Klaviyo using RFM profile properties

Put this RFM group data to work. The RFM analysis report will update two profile properties within your account daily:

• Current RFM group
• Previous RFM group
• RFM group last changed

In the Klaviyo segment builder, you will see these profile properties listed as options when you select the criteria Properties about someone. We highly recommend building a segment for each RFM group so you can easily target them with campaigns. You can also layer on additional criteria, such as Is or is not suppressed for email.

Let’s think through an example: The RFM model is only based on purchase data and does not account at all for channel or message engagement, so there may be a subset of lapsed customers who are still engaging on some level. You could build a segment to isolate Inactive customers who are still actively engaging with your owned channels to see if there is any chance of winning these customers back.

Tailor your retention strategies to specific RFM groups

Once you’ve built out your RFM group segments, you can start to target each segment with specific offers and messaging designed to either retain them, or push them up into a higher value group. Explore strategies that work well for each group below.