Business gets hundreds of customers on a daily basis. It is very difficult to prioritize one customer over the other. This is because business has different criteria to evaluate its customers. Normally, business tends to give priority to the customer who gives maximum sales.
However, this becomes problematic because these high sales generating customers will give you sales once or twice a year. It is dangerous to prioritize them over your regular customer. To address this an interesting concept of RFM came up to enable businesses to evaluate its customers objectively.
RFM stands for Recency, Frequency and Monetary. This in simple terms means you need to rate the customer generally from 1 to 5 (1 being least and 5 being the highest) in all the 3 parameters.
This can be done by using percentile method.
This means subtracting all the customers’ last purchase date from today and give 5 points to top 20% customers for whom number of days since the last purchase is the least. Assign 4 points to those who lies in the range of 20% to 40% and so on.
Similarly we get ratings of each customer based on number of times she had made sales. The top 20% customers who had bought most frequently will be given 5 points. The same logic applies to monetary as well.
Once all the 3 criteria is known. Its time to rate the customers.
The rating follows the logic of Olympics points table where Recency is equivalent to Gold medal, Frequency is Silver medal and Monetary is Bronze medal. This means that a customer having 5 points in recency and 1 point each in frequency and monetary would be rated higher than the customer gets the rating of 4 in recency and 5 each in frequency and monetary.
This is based on a logic that a customer who once upon a time who made a huge sales and a customer who used to purchase from us frequently is more difficult attract than the customer who made sale recently.
The problem is this kind of rating and ranking is very dynamic and it changes every week if not every day. Hence, it becomes imperative to extract data from the system and process it show it in user friendly format on a daily basis.
Data visualization is inherently suited to tackle these kinds of challenges.
Contact us, if you want to know more about RFM analysis and want to implement in your business.
2 thoughts on “How to rank your customer with data visualization”
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