What is RFM Analysis?
Before we move onto debunking the myths, it’s important to take a step back and understand what RFM really means.
RFM is an acronym used by marketers that stands for 3 things:
- Recency – How recent was a purchase made
- Frequency – How often purchases are made
- Monetary Value – How much was spent
These three key items are widely regarded as the most important factors when trying to predict the value of a customer.
This means that customers who get the highest possible scores for shopping most recently, shopping frequently and spending the most money would be your best customer.
By using an RFM analysis model to analyze your customers, you can also answer pressing questions like:
- Which customers are most likely to be the best fit for your business
- Which customers do not fit your ideal target market
- What are the key metrics for high-quality customers
Now you might be thinking you’ve struck gold and are eager to dive into your RFM analysis. Unfortunately, there are a few issues with using this model.
The Pitfalls of RFM Analysis
Although these are some of the biggest indicators of value, it would be wrong to assume that these are the only available factors that can be used to gain insight into the issue.
When it comes to lead scoring, it’s downright impossible to add recency and frequency data into scoring models using tools in the modern marketing or sales tech stack. However, it doesn’t make them any less important.
It only takes a few Google searches to find more than enough research to support how Recency and Frequency are significant indicators of purchase intent. Here are some of the most interesting ones to save you a few clicks:
- Most B2B buyers are already 57% of the way through the buying process before meeting with a representative. (Accenture, 2018)
- 90% of B2B buyers now twist and turn through the sales funnel, looping back and repeating at least one or more task in the buyer’s journey. (CMO, 2019)
- The average B2B buyer journey involves the consumption of 13 pieces of content with an average of eight vendor-created pieces and five from third parties. (FocusVision)
Why do these fairly standard facts matter, and what do they have to do with RFM analysis?
We can dispel a couple of myths that hold many companies back from realizing significant revenue acceleration when we look at these two items in the context of lead scoring.
RFM Analysis Myth #1: Lead scoring is outdated or ineffectual
If you’ve been in the marketing realm long enough, I’m sure you’ve heard this phrase: “We should all be trying to sell to everyone that hits our website!”
The reality is that this is far from the truth, and extremely difficult to scale cost-effectively.
Loads of research shows that getting to leads in a timely fashion increases the likelihood of winning that deal dramatically, that’s true. What gets glossed over is that this is only true if we are talking about a legitimate sales lead who is significantly down the path to purchase.
In fact, according to Forrester, 60 percent of B2B buyers are only ready to talk to a salesperson once they’ve done their research and are well into their buyer’s journey.
Many marketers succumb to the “every visitor is a customer” pressure, so everything becomes a lead resulting in only 27% becoming qualified.
It isn’t that lead scoring is a waste of time, but faulty lead scoring models can wreak havoc on your projected revenue.
RFM Analysis Myth #2: MQL’s aren’t worth the sales teams time
MQL’s (or Marketing Qualified Leads) get ignored because sales teams don’t trust marketing. You’ve probably heard this said before too; it’s a huge part of the reason where there exists an air of tension between the marketing and sales teams.
After all, why should the sales team spend their hard-earned time calling every lead when only 30% of the people are ready to buy?
Research by InsideView found that Sales Reps consistently ask for “better quality leads” and ideally more of them from their marketing teams. When you consider that companies that use lead scoring to qualify leads see a 77% greater marketing ROI but only 44% of companies use lead scoring systems, it’s not hard to see why.
If you take this information into account, it’s not hard to understand why Marketing and Sales alignment is a consistent board room topic.
RFM Analysis Myth #3: If we don’t get in front of our leads first, then we’ve already lost
If the fact that the vast majority of your future customers are on a twisting and turning buying journey or that most don’t want to engage with a representative as their primary source of information has not convinced you that identifying intent is crucial to selling more and better deals, maybe some more facts will.
How about the fact that 76% of sales emails never get opened (TOPO) or that nurtured leads are 20% more likely to purchase (DemandGen Report) and make purchases that are 47% larger (The Annuitas Group).
Timing is everything, but making sure you are timing the right thing is step 1 – engaging with your real future customers should be your main goal.
How Do I Apply RFM Analysis to My Business?
So what does it look like to apply the principles of RFM to your B2B business? Well, at a minimum it looks like this:
- Identify the most common combination of behaviors and attributes of your ideal customers
- Make sure that both sales and marketing agree with your definition of “ideal customer” and their identifiers
- Apply Recency and Frequency scores to all the trackable behaviors identified
- Validate the predictive value of those identifiers by looking at data broken out by won vs. lost and elapsed time
If you’ve found meaningful clusters and are confident with your definition of an ideal customer, you have the building blocks of an RFM inspired scoring model.
The big challenge we alluded to above, and one of Breadcrumbs’ main differences, is that baking in Recency and Frequency into scoring models using traditional tools is tough.
Hard doesn’t mean impossible, so don’t let it discourage you. Use the tips and tricks you found in this article to create the model best suited for you and your business.