Advantages and Disadvantages of RFM Analysis

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In RFM analysis, rather than analyzing customers from a single perspective, three factors—recency, frequency, and currency—are combined.

The benefit of RFM analysis is that it allows you to group and organize customers that exist ambiguously. Since they can be classified as good customers, new customers, etc., you can take actions that are likely to stick with each of them.

advantage

By conducting an RFM analysis, you can pinpoint customers with brazil telegram number database lower long-term value, such as those who are unlikely to make future purchases. You can then spend less time approaching this group and focus your efforts on customers who are more likely to result in a sale. This enables your marketing and sales teams to work more efficiently and get results faster.

shortcoming

The more detailed the data, the better results the RFM analysis can yield – but, at the same time, the actual analysis can be very time-consuming.

Additionally, RFM analysis ranks the most recent customers as the best customers, so it may overlook good customers who only purchase once a year or so.



There may also be customers who did not purchase during the measured time period but are actually very motivated to buy from your company. If ignored, this may result in customer churn due to lack of follow-up.

To ensure that you are evaluating your customers correctly, it is best to use a mix of different analysis methods rather than relying on RFM analysis alone.

How to perform RFM analysis
 

RFM analysis is conducted in three main steps: collecting data, determining base values, and summarizing information.


1. Collect customer data


Gather all the data you can from online and offline purchases. Next, sort the data by date of purchase, number of purchases within a set time period, and total number of purchases.