One thing to keep in mind is that not all customers are created equally.

One single ICP (Ideal Customer Profile) generates a margin of as much as 376 low-value customers. So it’s not fair nor smart to treat everyone the same and to focus on the wrong customers, right?

Because now the customer acquisition cost is so high that you can’t afford that. 

So in order to address this issue, RFM marketing is what you should be focusing on.

RFM stands for Recency, Frequency, and Monetary value, so after 30% of the revenue is being generated by the returning customers, you have to do RFM segmentation. 

What actually is RFM marketing?

Each of the customers gets a score based on how recently they’ve bought, how frequently they’ve bought, and what their customer lifetime value (monetary value) is.

Let’s focus here for a second.

We have the New Passions. They are the ones that have the highest revenue, the lowest frequency (they’ve purchased only once), and the highest recency.

  1. After 30 days, out of these 100 customers, 5 of them will be Lovers because they placed two more orders, 20 of them will become Potential Lovers because they placed only one more order, and 75 out of those 100 will still be New Passions as they haven’t placed any orders.
  1. After 90 days, there would be all sorts of transitions. If 5 of the Lovers will place two more orders, they will become what we call the Soulmates because they have the highest recency, the highest frequency, and the highest monetary value. 15 of them will become Lovers as they placed their second order. 10 of them will still be Potential Lovers, but 70 of them will become Not to Lose customers because these are customers that are being threatened to vanish, not to come back and buy again.
  1. After 180 days, these transitions that are happening will make the 100 New Passions be transformed into 6 Soulmates as they placed one more order, 16 Lovers as they placed one more order, 13 Ex-Lovers, which are the customers that haven’t repurchased and 65 of them will be Don Juans.

That’s the reality that is affecting right now any e-commerce business.

To understand that and do something about it, you need to understand which are:

The Soulmates

These customers have the highest recency, frequency, and monetary value. In this case, the share of customers is 3%, but the revenue share is 12%.

While in the total lifetime of a shop, they could have been generating 10% of the revenue, if you look at the last month, maybe 20% of the customers are Soulmates and generating 19% of the revenue.

The main goal: Acquire more like them.

The following step: Research the Ideal Customer Profile and understand:

  • Who they are;
  • Their demographics;
  • The job to be done;
  • Why they are buying the products;
  • What kind of products they are buying.

After that, you need to build lookalike audiences based on them because you want to acquire more like them. And thanks to the cookie deprecation, you need to help the Facebook algorithm to acquire more customers like the best ones.

Then you need to prepare unique campaigns strictly for them because they have the highest propensity to buy and have the highest purchase power from the entire database of your customers. 

The New Passions

In this example, they represent 18% of the last month’s customers and have generated 24% of the revenue. 

The main goal: Incentivize them to place their second order.

You don’t want to miss this opportunity: they have the highest recency, the lowest frequency, and the highest monetary value.

The next steps:

  • Think of ways to surprise and delight them early on;
  • Run cohort A/B testing to identify how to onboard the next ones better;
  • Run tailor-made campaigns precisely for them, because you know that their purchase power is different than the other ones;
  • Give them extra incentives;
  • Test out what works for them to get from one order to the second order.

The Ex-Lovers

They used to be Soulmates. They have the highest frequency,  the highest monetary value, but the lowest recency.

The main goal: Re-engage them

The next steps:

  • Find out what stopped them from buying;
  • Treat the objections for the next ones;
  • Run tailor-made campaigns. 

One very cool campaign that you can do this holiday season for the Ex-Lovers:

“Hey, we have a gift for you in exchange for your opinion!”

“Give us your advice!”

“What happened between us?”

These types of email lines and ad campaigns that you can do remarketing with are the ones that will trigger their attention because the ask is quite low, you don’t ask them to buy.

But at the end of the survey, once you capture this kind of data, you can give them a voucher or a gift. In this way, you disguise the fact that you want to re-engage them with the fact that they’ve given you the information.

By the way, that information is crucial to change your strategy in the future.

The Don Juans

These customers bought a long time ago only once, but they have a big monetary value.

The main goal: Re-engage them

The next steps:

  • Find out what stopped them from buying;
  • Treat their objections;
  • Run tailor-made campaigns as they have a high purchase power. 

If you want to start doing RFM, I recommend you to take our Omniconvert Reveal for a spin. 

If you want to learn more, the CVO Academy is for you:

A place where you will find a lot of advanced methods to improve your eCommerce and to level up the game of your eCommerce.

At this moment there are so many ideas.

But what you need to do is to look at the fundamentals of how an eCommerce grows.

Customer Value Optimization covers acquisition, conversion, and retention.