Search
Close this search box.

Want to Segment Your Audiences? Start With RFM

You know you need to segment your audiences for better targeting, scaling, and gaining greater effectiveness in your (or your clients’) campaigns. We are all on the same page, right?

Great! Let’s get into it.

The problem comes when too many fingers are in the “this is how you should segment” pie. “Segment by products, age, geography, category, and start scaling.” High-level segmentation tactics like these have their place and time, but in 2024 we need to be more granular and strategic in our approach.

There is an approach you should be considering that can fast-track your initial segmentation, focusing on a wide range of collective purchase engagements from across your customer base. 

The secret resides within the concept of RFM, i.e., the Recency, Frequency, and Monetary purchasing actions of your customers.

Let’s dive into each of these areas of RFM and why they matter.

RFM reports AdBeacon

Customer Purchasing Recency Trends

How recently did the customer you are targeting in your campaigns make their last purchase? Why should you care? If the customer purchased at any point and they are in your CRM – they are always prime targets to bring back, right?

Perhaps. Or there is more to the story.

We all know that the best time to focus on bringing a customer back is right after they made their purchase or had their product delivered to their front door. Assuming they like your product and have you top of mind, following up with a remarketing or email campaign to bring them back for a cross-sell or an accessory 100% makes sense.

But what if someone bought something 6 months ago or a year ago? Are they going to be in the same primed purchasing mindset? Most likely not.

You want to segment your customers by how recently they made their last purchase, using different messaging and creatives. Batching everyone together and using these decaying purchase timeline customer profiles in building lookalike audiences, for example, will most often degrade your targeting, causing you to burn up extra ad spend.

For example, if a customer purchased within the last seven days, let’s consider them a 5, they recently purchased and they are prime for retargeting. 

However, if they bought something a year ago – we might put them at a 1 in value, being that there has been considerable time passed since their last purchase.

 

This recency scale of 1-5 may depend on the average purchase timeline of your customers and the price point of your product. A $50 shirt and a $3000 Samsung dryer are going to have very different timelines and repurchasing opportunities, for example.

Case in point: you want to look at how recently customers have purchased and use this metric in your segmentation “buckets.”

RFM rankings AdBeacon

Customer Purchasing Frequency Trends

How often are your customers coming back and purchasing from you again? 

Depending on your product segment, this might be every month, quarter, year, or some variation. However, the frequency of customer purchasing holds weight in your customer segments.

 

Customers who seem to typically be purchasing every month should be getting different messaging, creatives, and featured products than those who are clocking in every 3 or 6 months, right? Glad you agree, great minds think alike :).

 

More importantly, could you use this frequency factor to inspire those quarterly and bi-annual shoppers to come back more frequently? This idea may take a whole different strategy, but now you can reallocate your ad dollars into a more suitable place for better results.

RFM trends - AdBeacon

The whole point of segmenting is to allocate the budget toward the best opportunities and away from the cash-burning activities. 

So you may even look at your frequency scale breakdown of 1-5 and decide that anyone who is not purchasing AT LEAST every three months falls in the 2-1 range and are not worth targeting.

 

In this case, you can remove these customers from your targeting and focus on your most frequent purchasers. The decision on segmentation is yours to make, but understanding the data so you can make a choice is where the buck stops – literally.

Customer Monetary Spending Trends

Alright, we’ve covered how recently and frequently your audiences are purchasing – now we land where the rubber meets the road – how much they are spending.

 

This one is pretty straightforward. 

Are customers attributed to your campaigns spending a lot or very little? 

There will always be a mix, but breaking out this mix will tell you a lot about what types of customers are ready to spend their hard-earned cash and which are barely moving the needle.

 

Let’s jump back into our scale of 1 – 5; here is how you might score your customers monetarily if you were a clothing brand:

  • $20 purchase = Monetary score 1
  • $50 purchase = Monetary score 2
  • $100 purchase = Monetary score 3
  • $150 purchase = Monetary score 4
  • $200+ purchase = Monetary score 5

So we don’t belabor the point regarding the importance of scaling our segments monetarily, let’s break this down further with how you might make this scoring more valuable. How? By scoring new vs. returning customers.

Customer Frequency in AdBeacon

New customer purchases score (example)

  • $20 purchase = Monetary score 1
  • $50 purchase = Monetary score 2
  • $100 purchase = Monetary score 3
  • $150 purchase = Monetary score 4
  • $200+ purchase = Monetary score 5

Returning customer purchase score (example)

  • $50 purchase = Monetary score 1
  • $75 purchase = Monetary score 2
  • $125 purchase = Monetary score 3
  • $175 purchase = Monetary score 4
  • $225+ purchase = Monetary score 5

You can see that breaking out these segments differently based on the purchase intent will affect your targeting, messaging, and creative strategies within your campaigns.

 

Putting the R-F-M Together

Ready to have your mind blown – or at least opened a little more? Combining the various scores of Recency, Frequency, and Monetary aspects will produce different potential audiences we can target against. Check out these examples:

RFM Customer/Audience “A”

  • Recency Score = 1
  • Frequency Score = 0
  • Monetary Score = 2

*This is a customer that purchased once a long time ago and spent very little.*

RFM bad customer

RFM Customer/Audience “B”

  • Recency Score = 3
  • Frequency Score = 2
  • Monetary Score = 3

*This is a customer that recently purchased, they have been back a couple of times with some latency, however, they spent a decent amount on their purchase.*

RFM med customer

RFM Customer/Audience “C”

  • Recency Score = 5
  • Frequency Score = 4
  • Monetary Score = 5

*Alright! We have a customer that just purchased, comes back regularly, and has spent hundreds – this is a prime target to double down and keep them coming back for more.*

RFM good customer

Leverage RFM on AdBeacon

We can’t tell you how excited we are about using RFM in campaigns. This simple concept unlocks segmentation potential based on tangible data that goes far beyond the standard age, location, and product-based audience segments.

AdBeacon has implemented RFM reports into your dashboard so you can start leveraging this valuable data now! 

There is far more to RFM than what we have laid out above, and we encourage taking some time and using RFM to enrich your audience segments, targeting, and profitability sooner – not later.

If you haven’t had the opportunity to experience AdBeacon, click here to book a live demo and we can walk you through RFM and all the amazing capabilities under AdBeacon’s hood. Until next time, target with purpose and scale with confidence.