B2B companies should borrow a page from catalog sales companies that use the tried-and-true approach of determining Recency, Frequency and Monetary values to gauge the effectiveness of marketing.
By Jim Nowakowski, President, Accountability Information Management, Inc.
A database is a collection of organized information; it’s a list. Many companies have such databases, but they are difficult to access. Databases that are effectively maintained are assets to companies and organizations that can use them to monitor data for marketing purposes, including tracking potential customers. Data can be especially useful when trying to determine Recency, Frequency and Monetary values for marketing analysis.
Customer data is vital to a B2B company’s marketing tactics. However, it’s only really helpful if the data is “clean” ─ it undergoes regular maintenance to help you minimize the risk of marketing to unprofitable prospects. Good list hygiene starts with defining your databases, both current customers and prospects. A common mistake is for marketers to group these two types together. However, they should be treated differently for optimal results.
Once databases are properly defined, you should concentrate on establishing targets within each database. This is done by sorting them by specific criteria that will show you what you need to know for more effective marketing purposes.
If you do not know where your databases are, you must find them and download them into a Microsoft Excel file. Then you must maintain control of them and keep them somewhere where only you or your designees can access and manage the information.
RFM: The key to analysis
RFM stands for Recency, Frequency, and Monetary values, which are elements in customer purchase behavior that predict whether a person will respond to a promotion. Many methods exist for calculating RFM, but sorting in Excel is among the best tools for producing a comprehensive picture. For Recency, your customer file is sorted by the most recent purchase contact with a customer. This assumes that the “purchase date” is a field in your database. As a matter of fact, the following fields would be required and preferred for your customer file:
- # of Transactions
- Amount of Transaction
- Item Purchased
- Date Purchased
- Profile the Company (demographics)
- Name, Address, City, State, ZIP, Phone, e-mail, fax
For your Recency analysis, sort from “Most Recent” to “Least Recent” on the purchase date field. Then, divide your sorted list into five equal parts (20%), known as quintiles. Assign the top 20% a value of “5,” the next 20% “4” and so on. If you were to do a promotion to your entire file, the best response would emerge from your “5s” because they are the most recent. People who have bought from you recently are more likely to respond to an offer than someone who had made a purchase in the past.
Frequency analysis is done the same way, but sorted on the number of times a customer has purchased from you. Finally, do the same with Monetary values. You will now have all of your customers with three new values: quintile scores in RFM, which can be added up into a total value, and then sorted from highest to lowest, giving you a profile of your best to worst customers. This is extremely valuable information in understanding the lifetime value of a customer, as well as behavior patterns to structure a strategy of contact.
Advance preparation completed before you build your customer file is the most important work you will do. You cannot underestimate the importance of planning the database. The cleanliness and standardization of data in advance will only help you make more informed judgment calls based on insights from what the data says.
The RFM approach can help you improve your marketing efforts by targeting the best potential customers for what you have to offer. The key to understanding your customers is having one collective standardized database that’s continually updated. Every time you touch your data, you’re evaluating your business relationships and your market, and you’ll gain a new perspective that can lead to additional strategies. Business is always changing, and this approach ultimately gives you real-time knowledge to target the right customers and increase your marketing effectiveness while keeping costs under control.
For more information, contact Jim Nowakowski at (847) 358-8558 or visit Accountability Information Management, Inc. at www.a-i-m.com.
Posted by Sue Garrison 
