Exploring Scoring and Customer Segmentation in RFM Analysis Report

Table of Contents

• What is RFM?
• Understanding Percentiles, Scoring, and Customer Groups
• Exploring Customer Groups in RFM Analysis

You Will Learn

This guide will explain how recency, frequency, and monetary scores, along with customer groups, are derived in the RFM report.

Discover why the Klaviyo Customer Data Platform (CDP) is a vital component not included in Klaviyo’s standard marketing application. A CDP subscription is required to access its functionalities. For detailed information on adding this to your plan or starting as a new customer, please refer to our billing guide.

For further insights into building and customizing your RFM report, visit our comprehensive guide on getting started with the RFM report.

Before You Begin

To effectively utilize the RFM report, ensure that:

• Your customer base includes at least 500 individuals who have placed an order. It's important to note that this number should reflect actual purchasers, not total profile counts. A blank section in a profile indicates a lack of sufficient data for prediction.
• You have integrated an e-commerce platform such as Shopify, BigCommerce, Magento, etc., or you are using the Klaviyo API for order tracking.
• Your business maintains an order history of at least 180 days, with recent activity in the past 30 days.
• You have customers who have placed three or more orders.
• Access to this report is limited to Owners, Admins, Managers, and Analysts.

RFM Definitions

RFM metrics, commonly used in marketing and data strategies, are defined in Klaviyo as follows:

• Recency: The number of days elapsed since a customer's last purchase within your report’s timeframe.
• Frequency: The regularity of a customer's purchases within your report’s timeframe.
• Monetary Value: The total amount a customer has spent on past purchases in your account. These definitions can be revisited within the RFM report under Advanced settings > About RFM.

Understanding Percentiles, Scoring, and Customer Groups

Percentiles and Scoring Klaviyo determines a customer's percentile rank among all customers based on recency, frequency, and monetary value. Following this, each customer is assigned a score from 1 to 3 for each metric.

Scoring is done using thresholds unique to your account. They include:

• Recency Scoring: A score of 3 is assigned if the customer’s last purchase aligns with the average order interval. A score of 2 indicates uncertainty about future purchases, and a score of 1 suggests they are unlikely to purchase again.
• Frequency Scoring: The top 33% of customers (typically with 3 or more purchases) receive a score of 3. Those in the middle 33% (usually 2 purchases) get a score of 2, and the bottom 33% (often a single purchase) receive a score of 1.
• Monetary Scoring: Similar to frequency scoring, customers are ranked in the top, middle, or bottom 33%, with corresponding scores of 3, 2, and 1 respectively.

Exploring Customer Groups and Strategies in RFM Analysis

In the RFM analysis, customers are categorized into distinct groups based on their purchasing behavior, each defined by specific RFM score breakouts and associated with tailored engagement strategies.

1. Champions (Scores: 333, 332, 323): Your top-tier customers.

• Characteristics: Recently made purchases, buy frequently, and spend the most.
• Engagement Strategies:

- Invite to a customer advisory board. - Offer rewards or coupons for loyalty. - Solicit product reviews. - Include in the VIP segment. - Provide early access to sales and promotions.

2. Loyal (Scores: 321, 322, 331, 232, 233): Valuable, engaged customers.

• Characteristics: Purchase somewhat frequently or have made recent purchases, but spend less than Champions.
• Engagement Strategies:

- Send rewards or coupons for loyalty. - Employ cross-selling or up-selling based on past purchases. - Request reviews. - Invite to sales promotions after Champions. - Encourage restocking of items. - Ensure signup for SMS/MMS communications.

3. Recent (Scores: 312, 313, 311, 222, 223): Newer customers.

• Characteristics: May have purchased recently but do not purchase frequently.
• Engagement Strategies:

- Convert to a subscription model. - Offer promotions timed with average order period. - Encourage restocking of past purchases. - Use cross-selling or up-selling strategies.

4. Needs Attention (Scores: 213, 221, 123, 132, 133): Customers requiring re-engagement.

• Characteristics: May have been frequent or high spenders in the past but haven't purchased recently.
• Engagement Strategies:

- Inform about new product releases. - Implement win back campaigns. - Offer exclusive or time-limited promotions. - Personalize product recommendations based on past purchases. - Encourage restocking of past purchases.

5. At Risk (Scores: 231, 212, 122, 131, 211): Customers close to churn.

• Characteristics: Have not purchased recently and tend to spend less.
• Engagement Strategies:

- Engage with winback campaigns. - Offer exclusive promotions. - Personalize product recommendations. - Target with more affordable products. - Avoid over-messaging to reduce churn risk.

6. Inactive (Scores: 111, 112, 113, 121): Lapsed customers.

• Characteristics: Infrequent buyers who haven’t purchased in a long time.
• Engagement Strategies:

- Attempt re-engagement with win-back campaigns. - Offer exclusive promotions or coupons. - Consider list-cleaning for unresponsive contacts to maintain deliverability.

Each of these groups requires a nuanced approach, tailored to their specific purchasing patterns and engagement levels. By understanding and addressing the unique needs of each group, you can effectively enhance customer engagement and drive sales.