Applying Classic RFM Metrics to Increase the ROI of Your Email Marketing Messages
By Megan Ouellet, Director of Marketing for Listrak
April 5, 2010
A study by Forresteri found that marketers favor success measurements of specific email performance over metrics that highlight the long-term value of their programs. In fact, 71% determine success by measuring click-through rate, while 46% measure the ROI per email, and only 23% measure subscriber value. Open and click-through rates help you measure the engagement levels of your subscribers, which are imperative to the overall success of your campaigns. However, if you aren't looking deeper into your metrics to determine the value of your subscribers, you're only getting half the story.
Figure 1 - Source: Forrester Research, Inc.
RFM is a measurement made popular by direct market catalogers to analyze purchasing behavior, determine customer value, and predict reasonable results for accurate inventory and staffing. The model is relatively simple - results are measured by looking at the recency, or the last time a purchase was placed, frequency, or how often customers purchase, and monetary value, or how much money customers spent. It is an effective measurement that has been in practice over 40 years.
Ecommerce companies can apply RFM strategies to their email marketing to segment subscribers based on engagement and purchase intent and target them more effectively. Email provides nearly instant access to the data needed to measure the behavior, allowing you to easily identify your best customers and separate them from your inactive subscribers.
The benefits of targeting your audience by engagement level are significant. You can save on the deployment cost of each campaign by segmenting out your inactive subscribers, increasing the ROI of your email marketing initiatives. Your metrics will be more accurate because you're only sending messages to people who are interested in hearing from you. Your reputation will remain positive so ISPs continue to deliver your messages to the inbox. You'll decrease list fatigue and churn. And you can reach out to your inactive subscribers through a re-engagement campaignii to try to recapture their interests.
However, if you segment your list using RFM metrics you can significantly increase your profitability because you're not only targeting active subscribers, you're targeting the subscribers who spend the most money. Coupled with subscriber lifetime value analysis, RFM segmentation will greatly increase the effectiveness of your campaigns.
RFM helps you define the relationship you have with each subscriber as you can pinpoint where each one is in the customer lifecycle. As subscribers progress through the lifecycle, their needs change until they no longer need you. Using RFM metrics, you can extend the length of time subscribers are engaged with your brand and their overall lifecycle, as well as the value of each subscriber.
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